The ‘Big 4’ Preview Q2 Labour Market Data

The ‘Big 4’ weigh in ahead of the release of the Q2 labour market report:

• ANZ: We anticipate the data will confirm the ongoing labour market tightening we see in timely indicators, survey data, and anecdotes. We expect unemployment declined to 2.8% in Q2 (vs. 3.2% in Q1). And while we can’t discount that typical HLFS volatility could see unemployment come in above our expectation, risks are skewed towards a still-lower number. Private sector wage inflation is now running at its fastest pace since 2009 (albeit still well behind the cost of living). Further acceleration is likely, with average hourly earnings forecast to have increased by 5.8% y/y in Q2 (vs. 5.3% in Q1), and productivity-adjusted labour costs by 3.3% y/y (vs. 3.1% in Q1).
• ASB: Q2 labour data are expected to show the difficulty businesses face in finding workers. The unemployment rate is biased to fall to a fresh record low of 3%, as employment lifts slightly further after earlier Omicron disruption and while the labour force barely expands. Wage growth is expected to accelerate to its highest annual rate since 2008 and continue accelerating over the second half of 2022
• BNZ: We are formally forecasting a 0.3% increase in employment which, alongside a 70.9% participation rate, delivers an unemployment rate of 3.0%. This set of figures is very close to the RBNZ’s view. We caution, nonetheless, that the unemployment rate is very sensitive to the participation rate. We think the balance of risk is a lower than anticipated unemployment rate exacerbated by the fact that partial indicators suggest the quarterly increase in employment could be greater than expected in part bolstered by the surge in employment being reported in the 15 to 19 year age group. In terms of wages, we expect the upward trend to continue. We are picking a 1.1% increase in the private sector labour cost index taking the annual to 3.3%, which will be the highest reading since September 2008. The private sector unadjusted LCI is probably a “better” measure of wage inflation. We expect the increase in this variable to remain over 5.0%
• Westpac: We expect the unemployment rate to dip further to 3.1% in the June quarter. If so, that would mark another new low going back to the start of the survey in 1986. The demand for workers remains red-hot. With fewer disruptions from Omicron compared to the previous quarter, we expect to see a lift in both employment and participation, with a small net decline in unemployment on balance. Our forecast is in line with what the Reserve Bank assumed in its May forecasts, and would leave them on track for another 50 basis point OCR increase in August. Wage growth has been picking up over the last year, reflecting the tight jobs market. We expect a 1.0% rise in the Labour Cost Index for the private sector (0.9% overall). This would lift annual growth to 3.2%, the fastest pace since early 2009. The June quarter tends to be boosted by minimum wage rises.