New Zealand jobs data for Q2 (April to June quarter) is due on Wednesday August 1
- For anyone not in NZ though it'll hit on Tuesday July 31 at 2245GMT
The data:
- Unemployment rate: expected is 4.4%, prior was 4.4%
- Employment change q/q: expected 0.4%, prior was 0.6%
- Employment change y/y: expected 3.6%, prior was 3.1%
- Participation rate: expected 70.8%, prior was 70.8%
- Average hourly earnings: expected 1.0%, prior was 1.1%
- Private wages including overtime: expected 0.6%, prior was 0.3%
- Private wages excluding overtime: expected 0.%, prior was 0.3%
There are plenty of moving parts, as you can see, but the immediate impact will come from the two 'headlines', bold above
Preview via:
ASB:
- The higher minimum wage is expected to deliver a 0.6% qoq increase in the Labour Cost Index (LCI), with annual LCI wage inflation for the private sector rising to a six-year high. Risks to this pick are tilted to the downside and we expect the broader wage inflation backdrop to remain contained for now.
- Measures of labour market utilisation should remain elevated, with a moderate quarterly increase expected for employment and with the unemployment rate hovering around 9-year lows.
- A firming trajectory for wage increases and the still-tight labour market should keep the bias tilted towards a higher OCR. But the RBNZ has considerable flexibility at its disposal and a low inflation starting point - we don't expect the RBNZ to raise the OCR until the end of next year.
BNZ:
- All eyes will be on the Labour Cost Index (LCI) which is the measure that the RBNZ seems to focus on. With the 4.8% increase in the minimum wage hitting this quarter it is almost certain that the Q2 2018 reading will be higher than the 0.44% of Q2 2017. Most importantly, the annual increase in the LCI will push through 2.0% - the level seen as being consistent with a 2.0% CPI target. Many will play this down as an aberration but they will be missing the point. There are three more minimum wage increases penciled in and each of them is bigger than this year's event. Then there is the nurses' settlement, future pay equity settlements, the generally increased pressure on wages from staff shortages and heightened demands for compensation for rising CPI inflation all of which is yet to be fully captured in the data.
- One of the reasons that led the RBNZ to cut its cash rate through 2016 was that LCI inflation was falling and threatened to fall further. That excuse is well and truly buried for now with the LCI likely to trend higher for the next two years or so. If businesses do manage to push through the capital/labour substitution that they anticipate then this will eventually take pressure off the over-extended labour market but we doubt that the substitution will be sufficient to create genuine labour market slack given ongoing demands for workers accompanied by a likely softening in supply. The softening in supply is already evident with the annual growth in the working age population falling to 2.2% for the year ended June. That's the lowest increase since March 2015 and we expect it to trend even lower.
- Accordingly, slower growth in employment will still leave the unemployment rate at least as low as where it now is. For the record, we have a 0.4% pick for employment growth for the June quarter with the unemployment rate sticking at around 4.4%. It would take a significant deviation from these outcomes to have us change our view on likely future stresses in the labour market. What might have a bigger impact on our labour market expectations is Tuesday's release of the ANZ's latest monthly business opinion survey. Employment intentions have been dropping in this survey to levels that are starting to hint that we are too optimistic with our employment growth forecasts. The June survey had employment intentions at just +1.9% - a more than seven year low. Any further softening in this aggregate would be disconcerting.
