New Zealand unemployment rate hits 9-year low, reviving its sickly dollar

WELLINGTON: New Zealand’s jobless rate hit a nine-year low last quarter as employment surged past all expectations, fuelling hopes for a revival in wage growth and rescuing the local dollar from a 17-month trough.

The rousing report comes as the country’s new Labour-led government is planning to make the Reserve Bank of New Zealand (RBNZ) focus on employment and not just inflation when setting interest rates.

“The general take-out is that the kiwi jobs machine is working overtime, which is placing considerable pressure on the ability of the economy to supply the necessary workers,” said Mark Smith, a senior economist at ASB.

The jobless rate dropped to 4.6% in the third quarter, the lowest since the fourth quarter of 2008 and under forecasts of 4.7%.

Jobs growth was a rapid 2.2% in the quarter, with employers snapping up any worker they could find as the country grapples with a skilled labour shortage.

The red-hot demand lifted the participation rate to a record 71.1 %, a jump of 1.1 percentage points in just a single quarter.

The robust figures sparked a rally in the New Zealand dollar to US$0.6915, pulling up from a recent trough of US$0.6818.

The currency has been on the run as investors fret over the Labour government’s new left-leaning policies, including a clamp down on foreign investment and migration.

There has also been speculation that adding full employment to the RBNZ’s mandate could make the bank even more reluctant to raise rates, which have been at a record low of 1.75% since last November.

The central bank’s next policy announcement is due on Nov 9 and it is considered certain to stay on hold given a general background of subdued inflation.

New Zealand’s headline inflation rate was 1.9% in the third quarter, still well below the top-end of the central bank’s target band of 1% to 3%.

The sheer strength of the jobs report suggests adding employment to the policy mix might not act as a brake on future rate hikes, at least in the long run.

“The over-riding conclusion that can be reached from today’s data is that the labour market is tightening by the second and is putting upward pressure on wages,” said Stephen Toplis, head of market economics at BNZ.

Wages grew 0.7% in the third quarter and took the annual pace of gains to a five-year high of 1.9%. Some of that pick up was due to a government-mandated pay rise for care and support workers, rather than private demand.

Yet more such increases are on the way and the government plans to lift the minimum wage by 26% over the next few years.

“Against a backdrop of the tightening labour market, the chances of a trickle-up effect compounding the minimum wage effect are significant,” argued Toplis.— Reuters