Economist forecasts are for the unemployment rate to rise to 5.1 percent in the three months ended December. Photo: 123RF
- Unemployment set to hit four year high of 5.1 pct
- Recession has claimed thousands of jobs, slowed hiring
- Wages growth likely slowed to about 3 pct annually, two year low
- Soft numbers will back RBNZ 50 basis point rate cut
Unemployment is expected to reach a four-year high in official numbers confirming the recession has caught up with the jobs market and also slowed wage growth.
Consensus economist forecasts are for the unemployment rate to rise to 5.1 percent in the three months ended December from 4.8 percent in the previous quarter.
ANZ economist Henry Russell said the labour market was a lagging indicator of the economy.
"While the New Zealand economy appears to have bottomed out and is now recovering, the labour market is still playing catch-up to the past slowdown in activity."
The second half of last year saw loss of many hundreds of jobs in government restructuring and industrial layoffs, with estimates the economy has shed as many as 30,000 jobs in the past year, while the number of jobs advertised has been more than 20 percent lower than a year ago.
Given up
One factor that has likely limited a bigger rise in unemployment has been people giving up looking for work.
"Much of the current cycle in employment has been driven by young people, who were drawn into the workforce in 2021-22 when the labour market was tight and migrant workers weren't available," Westpac senior economist Michael Gordon said.
"As those conditions have reversed, many of them are ending up back at school rather than continuing to look for work. The result is that the official unemployment rate has risen at a slower pace than many of us (including the RBNZ) were expecting."
He said that along with slower growth in the size of the workforce and lower immigration would help put a cap on unemployment, which had previously been forecast to reach at least 5.5 percent.
However, recovery in the jobs market is expected to be slow until lower interest rates filter through to better household spending, and increased business activity and sales, although the mood has improved according to Westpac McDermott-Miller's latest survey.
Slow wages to content RBNZ
Meanwhile, a weaker labour market with more people chasing fewer jobs has put the brakes on the rise in wages.
During the pandemic a desperate need for workers fuelled strong wage growth, which, by some measures, was more than 7 percent annually.
ASB senior economist Mark Smith said all that had changed.
"Employees are just trying to hang on to their jobs and the security of having a job is trumping the pay increases they would be getting and lower inflation means consumers are asking for less compensation."
The consensus is for annual wage growth of around 3 percent.
Smith said that should satisfy the Reserve Bank's desire to see lower wages as a driver of slower domestic inflation, thus justifying a further 50 basis point cut to the official cash rate to 3.75 percent on 19 February.
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