Strong Jobs And Wages Line Up Another Rate Hike In May

The Q1 labour data showed that the labour market remains very tight and isn’t easing and is generally likely to be a concern to the RBNZ. This information is likely to drive another hike on May 24.

• Employment rose a stronger-than-expect 0.8% q/q to be up 2.4% y/y after 0.5% q/q and 1.6% y/y in Q4 (revised up from 0.1% q/q). Job growth in NZ remains strong despite capacity constraints but a 0.3pp jump in the participation rate to 72% signals some improvement in the supply of labour. Despite the rise in participation, job growth was enough to keep the unemployment rate steady at 3.4%, only 0.2pp above the Q1 2022 trough even with 500bp of tightening.
• Hours worked fell 0.3% q/q, because “bad weather” as a reason for absences or working fewer hours rose to a series high. Stats NZ notes that the actual number may have been higher as the cyclones also impacted data collection in Q1.
• The underutilisation rate fell 0.3pp to 9%, near a record low. Full-time employment rose 0.6% q/q and 2.5% y/y and part-time was also higher up 0.4% and 2.4%, the highest since Q4 2021.
• Even though Q1 private wages rose less than expected in Q4 (+0.9% q/q), earnings growth remains elevated in NZ and is likely to remain a concern for the RBNZ. The labour cost index rose 4.3% y/y up from 4.1% and is the highest since the series began in 1992. Stats NZ said “This aligns with other wage measures, like the unadjusted LCI and average hourly earnings, both of which also had the largest annual increases on record.”
• Public sector salary & wages rose 1.3% q/q and private +0.9%. The largest contribution to wage inflation came from healthcare & social assistance, as a new agreement came into effect in Q1.
• Average ordinary time earnings (ex overtime) rose 7.6% y/y up from 7.2%, also a series high.

Source: MNI - Market News/Refinitiv

NZ wages y/y%

Source: MNI - Market News/Refinitiv