Unemployment rate drop expected in this week's labour force survey

By Nona Pelletier for RNZ 

The rate of unemployment is expected to have slipped back in the third quarter, while a shortage of workers turns up the heat on wage growth.

A consensus of economists expect the third quarter Household Labour Force Survey (HLFS) to show an unemployment rate of 3.2 percent, compared with 3.3 percent in the June quarter.

"Wednesday's figures are expected to depict an extraordinarily tight labour market with employment above its maximum sustainable level," ASB bank senior economist Mark Smith said in a report.

"Widespread and acute worker shortages should hold the unemployment rate around record lows, with other labour utilisation metrics extremely stretched."

Kiwibank chief economist Jarrod Kerr said the utilisation rate provided a broader measure of the tightness in the labour market, in terms of people who were fully employed and productive in their roles.

"Those sorts of measures give us an idea of just how tight the labour market is and they're telling us that the labour market is very tight, and the outlook for wage growth is north. It looks like we're going to see wages continuing to rise," Kerr said.

Kiwibank expected annual wage growth to rise to 3.7 percent, from 3.4 percent in the June quarter, which was the highest rate of wage growth since the measure was introduced in the mid-1990s.

Kerr said increasing wages would mean the Reserve Bank (RBNZ) would have little choice but to hike the official cash rate (OCR) another 75 basis points this week when it updated its financial stability report.

While some economists were expecting the RBNZ to hike again early in the new year by another 75 basis points, Kerr said that would depend on fourth quarter labour market data, which was already showing early signs of employment hesitancy on the part of businesses.

"We're picking that HLFS employment growth fell to just 0.4 percent from 1.6 percent in the June quarter. Our forecast is also down from the recent peak in employment growth of 4 percent a year ago.

"But I think that what the Reserve Bank would need to see is the demand and the economy coming down to meet supply, which is obviously being held back by a lack of workers and a lack of resources within the economy."

Kerr said it would take some time for that balance to be achieved, although the situation could change in the new year.

"I think by the time [the RBNZ] comes back in February, they would have seen a decent slowing, not only in New Zealand growth but in global growth.

"I think by that stage, we would have seen enough of a slowdown and a move in the right direction on key economic indicators that [the RBNZ] will probably slow down and maybe even deliver a 25 or 50 basis point move. I don't think they'll be going a 75 again."

Kerr said the challenges in New Zealand were mirrored around the world, as central banks raised interest rates to combat record inflation.

"We've all got very tight labour markets and this is partly why New Zealand is losing workers at the moment," he said.

"We've got a net outflow of Kiwis because they've been attracted to very tight labour markets in Australia, and Europe. So it's a global phenomenon. And one, I think, that'll be slow to unwind."