Unemployment edges up to 3.4%, wages grow at record levels

By Gyles Beckford for RNZ 

The labour market remains strong with unemployment remaining close to record lows and wages rising at record pace, but there are some signs it may be close to turning.

Stats NZ reported unemployment edging higher to 3.4 percent, but with modest job growth and an increase in the slack in the market.

Private sector wages measured by the labour cost index rose 4.3 percent for the year ended December, while another measure using hourly pay rates matched inflation, rising 7.2 percent.

"The unemployment rate ... has remained at or near historic lows since the September 2021 quarter," Stats NZ senior manager Becky Collett said.

About 4000 jobs were added in the December quarter, while the underutilisation rate, which measured those seeking a job or wanting to work more, increased to 9.4 percent from 9 percent in the previous quarter, as the size of the workforce increased.

The participation rate, the proportion of working age people in the workforce, held at a record level.

The record level of wage growth showed many households were at least keeping pace with the rate of inflation and in some cases ahead of it.

Finding and keeping staff has been a major complaint of businesses over the past two years, and rising wage costs have been held partly responsible for the strength and persistence of cost pressures.

However, recent surveys have shown businesses starting to cut back on their hiring, and in some cases such as the The Warehouse retail chain, jobs are being shed because of slowing demand and sales, and the number of jobs being advertised has also fallen.

An easing of visa rules is also seeing more workers coming into key sectors and the country has started to gain migrants after losses because of the pandemic.

Westpac acting chief economist Michael Gordon said the data showed a still tight labour market, but one possibly close to peaking.

"The jobs market remains tight and wage growth is still picking up steam, but there is good reason to expect a turnaround over the course of this year as higher interest rates bite."

The labour market is usually one of the last parts of the economy to slow down.

Gordon said the numbers were lower than the Reserve Bank had been forecasting last November, which added to the softer inflation numbers last week.

"Today's results may have been softer than the RBNZ expected for the quarter, but right in line with their broader view - at most, you could argue that the labour market has reached a turning point three months earlier than they assumed."

He said the RBNZ could be expected to raise its official cash rate later this month, but by 50 basis points to 4.75 percent rather than last November's super-sized 75 basis points.

Kerr said that meant higher interest rates.