1 Nov 2017

Unemployment falls as wages rise from equity deal

2:23 pm on 1 November 2017

The number of people out of work has fallen to its lowest level in nearly nine years on the back of a strong rebound in jobs being created.

Unemployment has remained above 8 percent in provinces such as Northland, Hawke's Bay and Wairarapa.

Unemployment has remained above 8 percent in provinces such as Northland, Hawke's Bay and Wairarapa. Photo: RNZ

Official figures show the unemployment rate was 4.6 percent in the three months ended September from 4.8 percent in the previous quarter.

The jobless rate is the lowest since the end of 2008, with 56,000 jobs added in the past three months after an unexpected contraction earlier in the year, which just beat the number of people who joined the workforce.

"(The) September labour market data does support surveys of business confidence that have shown that while firms might be less optimistic about the general economy, they are getting on with the business of hiring to meet solid demand," Kiwibank chief economist Zoe Wallis said.

Expectations had been for unemployment to edge down to 4.7 percent with more than 20,000 jobs being added during the quarter.

The economy created about 104,000 jobs over the past 12 months, with solid demand in building, hospitality and service industries.

The number of people of the workforce in employment hit a record, while the number of underutilised people - a measure of slack in the workforce - held steady.

"This is in line with strong quarterly working-age population growth and near record-high annual net migration," said Statistics NZ labour market senior manager Diane Ramsay.

Employment numbers can be volatile and shifted by statistical factors, but are likely to become more significant for policy makers because the new Labour-led government intends to require the Reserve Bank to make full employment one of its policy targets along with low inflation.

ASB economists said growth in employment might ease off.

"Slowing growth momentum over the remainder of the year, uncertainty over the new government and concerns over signalled increases in the minimum wage may act to weigh on hiring decisions," they said in a note.

Meanwhile, wage pressures surged to their highest levels in five years, with the labour cost index rising 1.9 percent for the year.

That was in part boosted by the equal pay settlement for rest home workers coming into effect, and leaving aside that one off boost, wage pressures were a more subdued 1.6 percent, just below the previous quarter's annual rate.

KiwiBank's Zoe Wallis said the rest home works' pay deal might flow through to other sectors, and in any event she expected wage pressures to gather pace.

"The steady rise in the minimum wage over the coming years is expected to add to wage growth ... As firms build their workforces they are likely to find it increasingly difficult to fill roles. We believe that wage pressure will build over the coming year."

The labour market data was not expected to have any immediate effect on Reserve Bank policy, with the central bank expected to hold its official cash rate steady at next week's final review of the year.

However, Ms Wallis said it pointed to further capacity constraints in the economy, which would add to the case for earlier interest rate rises than the RBNZ has signalled, possibly by the end of next year.

The generally strong tone to the report resulted in the New Zealand dollar rising close to half a cent against the US dollar, as investors bet on stronger inflation forcing the Reserve Bank to raise rates sooner than expected.

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