Unemployment is set to hit its highest level in nearly nine years, as the lagging effects of last year’s recession and the sluggish recovery hit hiring and wages.
Economists expect the rate to rise to 5.3% at the end of June – the highest since the end of 2016 – and up from 5.1% in the previous quarter, with jobs having been shed and hiring almost at a standstill.
“We expect the unemployment rate to rise… as very modest growth in the labour force – labour supply – meets a small contraction in employment – labour demand,” ANZ senior economist Miles Workman said.
Economists have picked that the labour market was close to the bottom, but the lack of meaningful growth in the past quarter has cast doubt whether this might be the case.
Workman suggested a degree of “labour hoarding” had suppressed unemployment as firms opted to hold on to staff in anticipation of an economic upturn.
“If a recovery in economic momentum doesn’t do the heavy lifting when it comes to ‘right-sizing’ firms’ labour input, a further reduction in headcount may be needed.”
ASB senior economist Mark Smith said partial indicators since the last set of numbers had shown falling job advertisements, firms still shedding staff, little problem in finding staff except in specialised positions, and people quitting the workforce.
“Earlier falls in hiring and more competition for jobs is expected to continue to deter some candidates from actively seeking work.”
No hiring, some firing
Westpac senior economist Michael Gordon said chief among the casualties of the downturn and job losses have been young people.
“As the economy cooled off, this group has found themselves out of work again or are struggling to get into work in the first place.”
The overall slide in immigration from post-Covid gains of more than 130,000 a year to a mere 15,000, and a subsequent exodus to Australia, are likely to be marginal influences for the labour market.
However, cooling wage growth may be a more significant factor.
Expectations are that private sector labour costs grew about 2.3% in the June quarter – a four-year low – as the weaker employment market shifted the bargaining advantage to employers from workers.
That would mean wages falling behind rising inflation, but would also reduce wage pressures on domestic prices.
“Wage inflation can be considered broadly consistent with CPI inflation around target, but given we’re a decent clip from the labour market entering inflationary territory… it’s fair to say that disinflation pressures stemming from the labour market are set to continue for a while yet,” Workman said.
Kiwibank economists said conditions were right for another Reserve Bank interest rate cut on August 20.
“Downside risks to medium term inflation are growing given the soft labour market and dimming global outlook.
“We expect the RBNZ to cut the cash rate by 25bps (basis points) at the August meeting. And they’ll need to go to 2.5% eventually,” they said in a commentary.
By Gyles Beckford for rnz.co.nz
