Unemployment data may mean higher interest rates
Unemployment and wage data that will be released on Wednesday could put more pressure on the Reserve Bank to raise interest rates in the months ahead, economists believe.
The Reserve Bank forecast in August that official unemployment would hold steady at 3.3% in the three months to the end of September before climbing to 4.5% by the end of next year.
But some private sector economists believe unemployment may have fallen to a new modern low, which could add to pressure on the Reserve Bank to raise interest rates higher than it has expected.
Stats NZ will release wage data at the same time as it updates its employment statistics.
Any surprises over pay could be equally influential in helping chart the course for interest rates, with economists watching for any convincing signs that inflation may be leading to an emerging wage-price spiral.
ANZ Bank is forecasting that Stats NZ will report official unemployment was at 3.1% during the three months to the end of September, which would be the lowest rate since it started collating comparable statistics in 1986 and probably well before then.
However, it said ‘‘volatility’’ in the unemployment data made the number hard to predict.
ASB and Westpac banks are both tipping Stats NZ will report unemployment has fallen to 3.2%, matching its rate in the first half of this year, but ASB cautioned a correct pick would be ‘‘more a case of luck rather than good judgment’’.
Westpac acting chief economist Michael Gordon said demand for workers remained ‘‘red-hot’’.
‘‘Tax data suggests that jobs growth has even regained some momentum in recent months.’’
ANZ is already assuming the Reserve Bank will raise the official cash rate (OCR) by 75 basis points to 4.25% next month.
But it said stronger-thanexpected employment and wage data could firm up its own expectation of another 75bp hike in February, which would take the OCR to 5%.
On the other hand, if the data was weaker than expected, the Reserve Bank would probably disregard that ‘‘given all the other evidence that the labour market remains extremely stretched’’, it said.
Stats NZ reports a variety of different measures of wage growth when it reports its quarterly labour market statistics.
ANZ is forecasting it will report productivity-adjusted labour costs in the private sector rose by 3.9% when compared with the same quarter last year, while ASB expects them to rise 4%. The adjusted labour cost index (LCI) is commonly regarded as Stats NZ’s best estimate of wage pressures in the economy.
That is because it attempts to take into account not just pay rises but also changes in the composition and skill level of the workforce over time.
But ANZ chief economist Sharon Zollner has queried whether it may under-report wage cost increases, as it disregards the phenomenon of ‘‘job title inflation’’, whereby people promoted to more senior roles may not be more productive.
ANZ is forecasting average private sector hourly earnings will have risen 8.2% over the year, ‘‘comfortably ahead’’ of the 7.2% inflation rate.
But, at least up to now, most other measures of wage growth, including the unadjusted LCI which was last measured growing at the annual rate of 5.1%, have still shown wage growth running below inflation.