New Zealand labor market likely to continue gradual strengthening over September quarter, says Westpac Research

New Zealand’s labor market is expected to continue its gradual strengthening over the September quarter, according to a report from Westpac Research. A range of indicators suggests that New Zealand’s labor market has continued to strengthen this year, even as the wider economy has entered a period of slower growth. Business surveys report that firms have been hiring at a rapid pace and intend to continue doing so, although skilled workers are becoming increasingly difficult to find.

From the Household Labour Force Survey (HLFS), a solid 1 percent rise in employment is expected. That follows an unexpected 0.2 percent fall in the June quarter, which was at odds with a swathe of otherwise strong indicators for the quarter. The drop in employment last quarter was accompanied by a sharp fall in the labor force participation rate, from a record high of 70.6 percent to 70.0 percent.

The decline in unemployment over the last few years has been a gradual one. Nevertheless, the labor market is moving closer to what could be considered ‘tight’ territory – that is, an unemployment rate that is associated with rising inflation.

"We estimate that this wage increase will add 0.4 percent to the LCI for the September quarter. Taking out that impact, our forecast implies a modest uptick in annual labor cost growth, from 1.7 percent to 1.8 percent," the report said.

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