New Zealand’s labor market likely remained healthy in Q1

New Zealand is due to release its labor market data for Q1 next Wednesday. The data is expected to convey the message that the labor market of New Zealand continues to be healthy, noted ANZ. Apart from quarterly volatility, the data is likely to indicate that spare capacity in the labor market is narrowing gradually, according to ANZ.

In Q4 2015, HLFS employment rose 0.9% on quarter-on-quarter basis, recovering from weakness recorded earlier in 2015. Even if indicators of companies’ intentions of employing people have not given a unanimous signal since then, employment is likely to be in-line and consistent with a healthy labor demand backdrop.

On the supply side, the working age population rose strongly by 0.7% q/q, pushing the annual growth up to 2.5%. However, it will be dependent on the participation rate that had declined considerably by 0.3 percentage points to 68.4% in the last quarter of 2015, noted ANZ. Participation rate is expected to increase to 68.8% in the first quarter of 2016.

“This should be enough to see the unemployment rate retrace some of Q4’s fall, lifting from 5.3% to 5.5%”, added ANZ.

Meanwhile, the overall wage growth figures are expected to be low, reflecting low inflation. According to ANZ’s preferred measure, the private sector LCI, wage growth is likely to be at 0.3% q/q and 1.7% y/y. Recently, the RBNZ noted that the labor market has had a vital role in holding back domestic inflation. Hence, any change in labor market “slack” will have monetary policy implications, said ANZ.

“We suspect that the likes of the RBNZ’s new Labour Utilisation Composite index will hint that conditions are slowing shifting a little tighter”, noted ANZ.