MNI ANALYSIS: New Zealand Jobless Rate Up But Below NAIRU

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By Sophia Rodrigues

     SYDNEY (MNI)  - New Zealand's unemployment rate rose slightly in the second

quarter but remained below the Reserve Bank's estimate of non-accelerating

inflation rate of unemployment, indicating monetary policy remains supportive of

its goal of maximizing employment. 

     The second quarter labor market statistics, published Wednesday, showed an

acceleration in wage growth mainly due to the impact of rise in minimum wages,

and together they support the RBNZ's on-hold for longer monetary policy stance. 

     Data published by Statistics New Zealand showed the jobless rate rose to

4.5% in Q2 from 4.4% in Q1, slightly higher than MNI median forecast for 4.4%

but remained lower than RBNZ's estimate of NAIRU of 4.7%. 

     The jobless rate rose mainly due to rise in participation rate as

employment rose more than forecast, up 0.5% q/q compared with MNI median

forecast for 0.4% rise. At 70.9%, participation remains close to record high of

71.1%.

     Along with rise in the jobless rate, an important measure of spare capacity

in the economy -- the labor underutilization rate -- rose to 12.0% from 11.9% in

Q1. The rise in underutilization came from equal contributions from people

unemployed and underemployed. This indicator will be important to watch if the

growth momentum in the economy slows in coming months.

     Private sector labor cost index rose 0.6% q/q, in line with expectation and

took y/y rise to +2.1%. The rise was mainly due to increase in minimum wages and

without that, the labor cost index rose just 0.4% q/q and 1.9% y/y. Apart from

minimum wages, the labor cost index received support from wage settlement for

care and support workers last year. Excluding that impact and the impact of

minimum wages, the labor cost index rose just 1.6% y/y. This suggest there is

still lack of broader wage pressures in the economy.

     Household Labor-Force Survey data for the second quarter published by

Statistics New Zealand on Wednesday:

                                               Q2    Q1

-------------------------------------------------------

                                              (%)   (%)

Unemployment Rate                             4.5   4.4

MNI Consensus              4.4 (range 4.2 to 4.5)

Employed Q/Q                                 +0.5  +0.6

MNI Consensus            +0.4 (range -0.3 to 0.7)

Participation Rate      70.9 (range 70.5 to 70.8)  70.8

MNI Consensus           71.0 (range 70.8 to 71.1)

Private Sector LCI Q/Q                       +0.6  +0.3

MNI Forecast                                 +0.6

Private Sector LCI Y/Y                       +2.1  +1.9

Underutilization Rate                        12.0  11.9

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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