The New Zealand labour market is showing signs of a controlled slowdown in the June quarter of 2024. Economists predict that the unemployment rate will rise to 4.7%, up from 4.3% in the previous quarter. This increase reflects the impact of the Reserve Bank’s tight monetary policies aimed at curbing inflation.
Senior economist Mark Smith notes that recent high-frequency indicators have pointed towards job losses in the past months. However, the current labour market trends remain within the expected range set by the Reserve Bank. The controlled nature of this descent suggests that while there are job losses, the overall economic environment is not facing a severe downturn.
Wage growth is also showing signs of easing from its previous highs. However, the June quarter figures might still show higher wage growth due to ongoing public sector pay agreements. The deceleration in wage growth aligns with broader economic trends and further signifies a cooling labour market.
The slowdown in the labour market is a direct response to the implemented monetary policies intended to curb inflation.
New Zealand job market slowdown
The Reserve Bank’s measures appear to be taking effect, but economic analysts will be closely monitoring forthcoming data to gauge the broader impacts on economic stability and growth.
Westpac senior economist Michael Gordon observed that the labor market is “clearly softening,” which is what the Reserve Bank wants to see. “The rise in unemployment from its lows was gradual at first but has picked up the pace in recent quarters,” he noted. Employers are no longer facing the labor shortages experienced in recent years.
Gordon explained, “That’s due to a combination of a surge of migrant workers to fill the gaps once the border was reopened and a drop in demand for new workers as the economy has cooled off.”
As demand for workers eases and competition for jobs rises, wage inflation is expected to cool further. ASB’s Smith indicated that private sector wages would likely rise by 0.8% in the quarter, with annual cost growth cooling to 3.5%—the lowest level since mid-2022. ASB anticipates that the official cash rate (OCR) will be cut by 50 basis points by the end of the year—starting with a 25 basis point cut in October and another in November.
Most economists expect at least one 25 basis point OCR cut by the end of 2024. The jobless rate would need to significantly deviate from expectations to prompt an OCR cut in August, according to financial analysts. The probability of an OCR cut largely hinges on upcoming employment data.
If the jobless rate unexpectedly rises, it could prompt a reevaluation of the current monetary stance.
