Drop in NZ employment may prompt RBNZ to consider December rate cut

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 4, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Statistics New Zealand today reported a drop in employment for the Q3. Employment dropped 0.4 per cent from the second quarter pushing the unemployment rate to rise to 6 per cent from 5.9 per cent. The annual employment growth slowed to 1.5% y/y. The drop in employment for the first time in three years has not only raised New Zealand’s jobless rate but has also resulted in a dip in the New Zealand dollar.

    Labour demand weakens as participation rate decreases

    For the second consecutive quarter the employment growth failed to keep pace with the growth in number of people who can be employed. This implies that despite a significant rise in working age population the overall participation actually shrank in this quarter. The participation rate fell a sharp 0.7%pts in Q3 to 68.6%. The country witnessed sharp weakening of Labour demand in Q3. Part-time employment fell 4.1 per cent in the third quarter from the second, while full-time employment rose 0.2 percent

    Subdued wage growth as spare capacity on the rise

    Wage growth has been benign in this quarter. Wages for non- government workers excluding overtime rose 0.4 percent from the second quarter less than a 0.5 present increase as seen by economists. What possibly has resulted in this slower wage growth is that New Zealand has received record number of immigrants thereby making it possible for employers to employ people without having to raise wages. Only 55% of workers experienced a wage increase over the past 12 months, down from 57% in Q2. Private sector LCI wages rose 0.4% q/q, with annual wage growth from this measure easing to 1.7%. The unadjusted LCI for the private sector rose 2.9%.

    Will the RBNZ take action in December?

    With the unemployment rate highest in three years and wage growth benign, The RBNZ can be expected to opt for further monetary easing as soon as December . However, the labour market is not one of the leading indicators, so it might not be a strong impetus for the reserve bank to consider a rate cut. Even if the RBNZ refuses to consider the labour market data as a basis for its decision on rate cut, it cannot ignore that economic growth has weakened after a dip in farm incomes that resulted from a plunge in dairy prices.

    A December rate may be in the pipeline if and more timely growth indicators do not pick up.
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