Wednesday, May 5, 2010

New Zealand Labour Market Turns a Sharp Corner

New Zealand today released its employment data (the Household Labour Force Survey), showing a marked reduction in the unemployment rate from a revised 7.1% in Q4 2009 down to 6% in Q1 2010. Consensus estimates were for no change at the previously announced 7.3% level. And as we conclude in the following analysis, the improvement was for all the right reasons...

As you can see in the chart above, the result is driven by a very strong quarter of jobs growth by historical standards, it also follows some 4 quarters of negative or nil growth. That's one part of the "right reasons" for the turnaround in the unemployment rate, the other part is in the chart below. You can see that not only was the growth in full time jobs one of the highest on record, but it coincided with a decline in part-time jobs (i.e. this indicates a switch from temp/part-time to full time), so this is genuine employment growth, in a genuinely strong labour market.

Much of the jobs growth came from the productive sector, with the Manufacturing sector leading jobs growth (9.2k), while other similar sectors also improved e.g. Construction (2.1k), Wholesale trade (4.1k), and Agriculture (1.2k). The result sent the NZD up about 100 bps against the USD. The New Zealand dollar has climbed almost 30% against the USD over the past year, while the main stock index; the NZSX 50 is up about 12%. The result came shortly after inflation was revealed to have grown 2% in the same quarter.

So now onto the interesting bit; what does this mean? First of all it means, unless there's a major meltdown in Europe, the case for an interest rate rise in New Zealand is growing even stronger. It's almost a certainty now that the RBNZ will raise the OCR in June. But in terms of the wider economy and broader implications, it points to a reasonably robust recovery. Jobs growth is needed to facilitate growth in spending, saving, and asset prices. So feeding this into the economic outlook for New Zealand paints a reasonably promising picture, but it is still early days, and there's still a lot of hard work to be done to get back to trend.

Things to watch for in New Zealand:
  • May 20 - Budget announcement (including tax reforms, which the government has signalled may include rises in the Goods and Services tax, lowering of personal income tax rates, and tightening up of investment property tax loopholes).
  • June 10 - RBNZ Monetary Policy Statement (which will likely include increasing the OCR 25bps to 2.75%).

Econ Grapher Analytics
Statistics New Zealand

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