New Zealand’s jobless rate dropped to near eight-year lows last quarter as employment blew past all expectations, yet stubbornly low wage growth meant the broadly strong numbers were still no bar to another cut in interest rates. The New Zealand dollar climbed to $0.7212 in the wake of Wednesday’s upbeat data, from around $0.7185, as markets wagered the central bank would possibly ease only once more – at next week’s policy review – and hold steady thereafter. In a report paved with milestones, annual jobs growth reached a stunning 6.1 percent, easily the fastest pace on record, while the participation rate hit a peak not seen in at least 25 years at 70.1 percent. The unemployment rate fell 0.1 percentage points to 4.9 percent in the third quarter as employment jumped 1.4 percent, almost triple market forecasts, the report from Statistics New Zealand showed on Wednesday.
“It just shows jobs are being created left, right and centre in the New Zealand economy and that’s indicative of an economy that’s growing very rapidly,” said Stephen Toplis, head economist at BNZ. The economy grew 3.7 percent in the year to June, handily outpacing much of the rich world. Yet while 35,000 new jobs were created in the third quarter, the labour force expanded by an equally sharp 33,000 as new migrants flooded the South Pacific nation. With supply rising to meet demand, wage growth has remained remarkably restrained. Wages were up a scrooge-like 0.4 percent from the previous quarter, and just 1.6 percent from a year ago. That in turn is keeping inflation far lower than preferred by the Reserve Bank of New Zealand, which economists expect will still cut interest rates at a policy meeting next week. Inflation is currently running at only 0.2 percent, well below the RBNZ’s target band of 1 to 3 percent. “While the labour market clearly continued to strengthen heading into the second half of the year, this is not yet having an impact on nominal wages,” said Anne Boniface, Westpac senior economist, in a research note.
The sheer strength of employment, however, could mean the central bank is almost done easing and will be able to hold steady next year. “There are no indications in the labour market results that reinforce the need for further OCR cuts beyond next week,” said Nick Tuffley, chief economist at ASB, in a research note, referring to the official cash rate of 2 percent. (Reporting by Charlotte Greenfield)