CORRECT: NZ employment data supports picture of strong economy with little inflation
New Zealand employment data showed a record number of people entered the workforce in the fourth quarter and the participation rate reached an all-time high, yet wage inflation was mild, leaving the economy in a sweet spot of robust economic growth with little inflation.
The size of the labour force grew by 36,000 in the final three months of 2014 and employment rose a greater-than-expected 1.2 percent, for an annual gain of 3.5 percent, according to Statistics New Zealand. The participation rate also beat expectations, rising to a record 69.7 percent.
Yet wage costs came in as expected. The labour cost index shows private sector ordinary time wages rose 0.5 percent in the quarter for an annual gain of 1.8 percent, which Satish Ranchod, an economist at Westpac Banking Corp, called "a very modest result in the context of an economy that's been growing at a solid pace for some time now."
The Reserve Bank last week said the country's annual economic growth was above 3 percent, supported by increased building activity and household incomes, though fiscal consolidation, a lower dairy payout, the threat of drought and a high exchange rate weighed on that expansion.
The unemployment rate rose to 5.7 percent in the fourth quarter, from 5.4 percent three months earlier, beating expectations of a decline to 5.3 percent, as more people entered the labour market. The New Zealand dollar dropped to 73.59 US cents from 73.67 cents immediately before the 10:45am release, on expectations the jobs figures don't point to accelerating inflation that would derail the Reserve Bank's shift to neutral in monetary policy last week. The trade-weighted index fell to 76.19 from 76.29.
"So for the Reserve Bank it's good news - economic growth is stronger and at the moment there doesn't seem to be much inflation surge coming through with it," said Darren Gibbs, chief economist at Deutsche Bank. From Reserve Bank governor Graeme Wheeler's viewpoint, "it's another reason you don't need to tighten."
Gibbs said, though, that the quarterly employment data tended to be volatile and he is cautious jumping to conclusions . There was every chance the record participation rate could evaporate while unemployment could fall "quite sharply." Wages growth "does tend to lag behind the performance of the labour market," he said.
The government statistician combined its three employment measures - the household labour force survey, quarterly employment survey and labour cost index into a single release for the first time today. The QES showed full-time employment rose 0.6 percent in the fourth quarter, seasonally adjusted, from 0.5 percent three months earlier. Private average ordinary time hourly wages rose 0.5 percent, slowing from a 1.5 percent pace in the third quarter.