New Zealand Jobless Rate Hits Three-Year High as Rates Bite

(Bloomberg) -- New Zealand’s jobless rate rose to a three-year high in the first quarter and employment unexpectedly fell as high interest rates cooled demand and curbed hiring.

Unemployment climbed to 4.3% from 4% in the fourth quarter, the highest since the first quarter of 2021, Statistics New Zealand said Wednesday in Wellington. Economists expected 4.2%. Employment fell 0.2% from the previous three months, missing estimates of a 0.3% increase, while wage inflation slowed for a fourth straight quarter.

The loosening labor market will be welcomed by the Reserve Bank as it battles to return inflation to its 1-3% target band. While the economy entered recession in the second half of last year, domestic price pressures have remained more persistent than policymakers would like.  

“The Kiwi economy has been through a significant recession. Four of the last five quarters have recorded a contraction,” said Jarrod Kerr, chief economist at Kiwibank in Auckland. “The labor market lags the economy by about 9 to 12 months. So there’s still another year of softness ahead.” 

The New Zealand dollar dipped after the report. It bought 58.77 US cents at noon in Wellington from 58.86 cents beforehand. 

RBNZ Rates

Last month the RBNZ held its Official Cash rate at 5.5% and said it expected to keep monetary policy restrictive for a sustained period. Investors are betting on a fourth-quarter rate cut and most economists concur, although some expect the OCR to remain unchanged until 2025.

“Labor cost growth only slowly receded and is stronger than would be consistent with sub-3% inflation,” said Nathaniel Keall, an economist at ASB Bank in Auckland. “The inherent stickiness of labor costs and core inflation will be of concern to the RBNZ.”

Ordinary time wages for non-government workers rose 3.8% from a year earlier, slowing from 3.9% pace in the previous quarter, the statistics agency said. 

Average ordinary time hourly earnings for non-government workers gained 0.3% from the previous quarter and 4.8% from a year earlier. That’s down from a record 8.6% annual reading in the third quarter of 2022.

The drop in employment in the quarter follows indicators of deteriorating business confidence as a sluggish economy puts pressure on profits and hiring.

Annual employment growth of 1.2% was weaker than the 1.6% expected by economists and slowed from a revised 2.7% in the previous quarter.

The participation rate declined to 71.5% from 71.9% as a record influx of immigrants swelled the working-age population but not all the new arrivals were able to find jobs.

(Updates with economist comment in fourth paragraph)

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