NZ: Spare capacity remaining in the labour market - Westpac

New Zealand's unemployment rate fell to a nine-year low in the March quarter, but the employment growth has slowed, and wage inflation remains missing in action, which suggests that there is still some spare capacity remaining in the labour market, according to Michael Gordon, Senior Economist at Westpac.

Key Quotes

“The surveys for the March quarter have arguably deepened the mystery about the state of New Zealand’s labour market. Employment has continued to rise, albeit at a slowing rate, which would suggest that the economy is moving closer to full capacity. But there is still no sign of an acceleration in wage growth, and if anything the pressure on wages is going in the other direction.”

“The labour market surveys come ahead of next week’s Monetary Policy Statement, which will be the first under the Reserve Bank’s new mandate to consider employment as well as inflation outcomes. The unemployment rate was in line with the RBNZ’s forecast for this quarter, and is below the RBNZ’s estimate of the non-inflationary unemployment rate. But there is a sizeable band of uncertainty around that estimate, and the lack of a pickup in wage growth to date argues that the true ‘sustainable’ rate of unemployment could be somewhere further south.”