New Zealand jobless rate drops in Q4, but labor participation declines sharply

New Zealand's jobless rate declined in Q4 to 5.3% from 6%, in contrary to market expectations of a slight rise in the unemployment rate. In Q4, employment in New Zealand rose 0.9%; however, there was a sharp decline in participation in the labor force. While the nation's labor market is in a better shape, a wider suite of labor market indicators imply that the rebound was rather moderate and not strong. In reality, the labor market eased slightly in mid-2015 before rebounding slightly in late 2015.

Labor participation for ages under 30 declined sharply. Throughout regions, participation increased in Wellington, Auckland and the Manuwatu but declined in most other regions. On basis of gender, participation declined for both females and males, but it was more of a sharp decline for men than women.

Other labor market indicators such as the Quarterly Survey of Business Opinion indicated that companies are finding it more challenging to find skilled labor in Q4, whereas monthly surveys indicated a rise in employment intentions. Also, households have become more positive regarding employment outlook. This corroborates with the view that labor market rebounded in Q4.

However, wage inflation continued to be low in spite of the strengthening labor market. The private sector LCI rose 0.4% in Q4 and was up 1.5% for the entire 2015. At the same time, the QES measure of wage inflation fell to 2.5%. For many years wage inflation has remained low. This is because of very low consumer price inflation. In 2015, consumer price inflation fell to the slowest rates in over a decade, implying that cost of living adjustments to wages is constrained.

"Over the coming year, we expect that nominal wage growth will remain modest. Consumer price inflation is set to take another step down, and that will keep a lid on cost of living adjustments", says Westpac.