NZ Q3 unemployment rate likely to lift 0.3 ppt to 4.2 pct, reflecting below-trend economic growth, says ANZ Research

New Zealand’s unemployment rate is expected to be lifted 0.3 percentage point to 4.2 percent in the third quarter of this year – a bounce-back from Q2’s strong 3.9 percent read and reflecting below-trend economic growth; annual wage inflation is expected to come in unchanged at 2.2 percent.

The unemployment rate is volatile and tends to lag economic activity, and our expectation of a small rise accounts for both of these factors: economic activity has recently slowed to a below-trend pace, suggesting a mild loosening in labour market conditions is in the pipeline; and Q2’s read of 3.9 percent (an 11-year low) is due for a technical bounce the other way.

Employment growth is expected to come in at a modest pace of 0.1 percent q/q, with annual growth softening from 1.4 percent to 0.7 percent y/y. A number of employment indicators have come in on the softer side recently, but it’s fair to say they haven’t done too well at picking quarterly volatility, the report added.

Indeed, HLFS employment growth remained relatively robust in Q2. Similar to ANZ’s expectations for the unemployment rate, employment growth of 0.1 percent q/q reflects both an easing in trend employment growth and an element of bounce-back from Q2’s solid 0.7 percent q/q rise, the report added.

Labour force participation is expected to hold steady at to 70.2 percent of the working-age population. Employment growth is expected to remain modest, with the participation rate remaining at a high level and migration coming off its peak.

"Looking forward, we expect the unemployment rate to lift a little further over the year ahead, peaking at 4.5 percent by the end of 2020 before gradually improving as economic momentum slowly recovers," ANZ Research further commented in the report.