New Zealand employment likely to have contracted modestly in Q4 2017 – ANZ
New Zealand employment is expected to have contracted modestly in the fourth quarter of 2017. According to an ANZ research report, employment is expected to have dropped 0.5 percent sequentially, which would see annual growth ease to 2.8 percent year-on-year.
While this decline is likely mainly due to statistical reasons, it should be acknowledged that labor demand metrics have appeared more mixed lately. The level of national jobs ads continues to be elevated; however, the pace of growth has decelerated. On a three-month average basis, annual job ads growth decelerated to 6.1 percent in December, down from nearly 20 percent rate witnessed in January 2017.
Also, labor force is expected to have reversed the third quarter’s strength too. Given a full percentage point rise in the participation rate to a new all-time high of 71.1 percent, the labor force had grown 2.1 percent in the third quarter. If employment partly unwinds its third quarter strength, the historical correlation with changes in the participation rate suggests that it should also reverse course. It is assumed to have fallen 70.5 percent, which might see the overall labor force contract by 0.5 percent quarter-on-quarter.
This should leave the jobless rate widely stable. While technically the projection is for it to rise 0.1 percentage points to 4.7 percent, that is still lower than in the second quarter and sits in the context of a gradual downward trend.
The question that would arise would be whether this tight labor market is filtering into higher wage inflation. This is expected to occur in time. The jobless rate is below the current estimate of the NAIRU. Moreover, the shift in policy direction is also in line with a higher wage growth theme.
“We expect the private sector Labour Cost Index – our preferred measure of wage inflation – to rise 0.5 percent q/q (2.0 percent y/y) in Q4”, stated ANZ.
At 13:00 GMT the FxWirePro’s Hourly Strength Index of New Zealand Dollar was neutral 49.0956, while the FxWirePro’s Hourly Strength Index of US Dollar was bearish at -85.6775.
Source: FXWire Commentary