New Zealand Q1 unemployment rate drops unexpectedly, wage inflation remains muted

After the surprises in the Q4 figures, today’s Q1 data points to a labour market that is back on script and more consistent with an anecdote. In other words, strong, with both the unemployment and underutilisation rates trending lower, and pointing to a market that is tightening.

The unemployment rate fell to 4.9 percent in the March quarter, a lower level than analysts had expected. The larger than expected drop in unemployment reflected stronger than expected jobs growth, with the number of people in employment rising by 29,000 over the quarter. Jobs growth in March offset the continued increase in the size of the labour force and associated climb in the participation rate (which hit a fresh record level).

While labour demand continued to strengthen, this has not yet translated into stronger nominal wage growth. The headline LCI index rose 0.4 percent in the quarter, leaving annual wage inflation at 1.5 percent (in line with expectations and largely unchanged over the past year). Similarly, the broader QES measure of average hourly earnings rose by a modest 1.1 percent over the past year.

"We doubt today’s data will have a significant impact on the RBNZ is thinking ahead of next week’s Monetary Policy Statement. While the employment numbers were firmer than they had assumed in February (when they released their last set of projections), the unemployment rate and wage inflation were in line with their forecasts," Westpac commented in its latest research report.