- The latest HLFS unemployment release saw a number of changes to the survey, making prior comparison almost impossible.
- The new report is a more accurate reflection on New Zealand’s labour market.
- Wage inflation continues to be supressed by strong population growth, chiefly from net migration.
The Q2 HLFS unemployment survey was widely criticised on release, with the report undergoing so many changes, compared to prior surveys, as to make meaningful comparison almost impossible. This drew the ire of economists across the industry (ASB included). It also means comparisons for the next 3-4 quarters of data will be challenging, as what is effectively a new series builds up some history.
While the criticisms are valid, the new report itself actually has a lot going for it. Adjusting the questions to more accurately reflect the way workers hunt for new roles should mean the jobless rate, of 5.1% in Q2, is closer to the real level of unemployment. Altering the classifications of a number of roles will also bring the survey in line with current workplace norms and is long overdue (when was the last time you started a job hunt by getting the local paper?). It also means those who are self-employed are more accurately reflected in the survey, which could have long-term policy implications.
Treating the new survey in isolation (as we are forced to do), shows New Zealand’s jobless rate is low compared to international peers. Part of the reason behind the adjustment to the survey was to bring New Zealand in line with global labour market metrics and the latest stats show New Zealand ranked 11th in the world for having low unemployment. New Zealand is behind nations such as the US (4.9%), the UK (also 4.9%), Japan (3.1%) and Germany (4.2%). However, all those countries have seen unprecedented levels of quantitative easing and near zero (or even negative) interest rates in recent years. New Zealand has, so far, not seen anything like the same levels of stimulus (and is not expected to do so), making the jobless rate here even more impressive.
Overall the new survey shows the New Zealand labour market is relatively healthy at the moment. The jobless rate is fairly low and overall employment is high. One area of concern is the lack of wage inflation against the backdrop of a strong market. This despite a number of surveys reporting more overtime is being issued and that finding both skilled and unskilled labour is becoming more difficult. Key reasons for the lack of upward pressure on wages are the impact of continued high net migration (see Chart of the Week, below) and low levels of inflation right across the economy.
Given all of the above, we continue to look for the RBNZ to cut the OCR by 25bp to 1.75% at the November MPS review. The Bank is reducing interest rates not due to high levels of unemployment, but due to a lack of inflation. Both of these were underlined in the last round of employment data. In addition, there is little to suggest there will be an abrupt change in direction in the jobless rate or wages in the coming months, leaving the path clear for the RBNZ to promote inflation via more stimulus.