NZD/USD boosted by NZ jobs report: key points broken down - ANZ

Analysts at ANZ offered a breakdown of the key points from today's impressive unemployment NZ report.

• NZD/USD: rallies nicely on jobs, extending the overnight gains, targets set on 0.70 handle

Key Quotes:

"Employment growth remained strong in Q1, with the HLFS measure rising 1.2% q/q (5.7% y/y), against consensus expectations of a 0.8% q/q lift. Admittedly, alternative measures were a little softer, with QES filled jobs rising 0.3% q/q and hours paid and hours worked printing at just 0.1% q/q and -0.6% q/q respectively. The latter reflects a large lift in part-time employment (3.1% q/q), with full-time employment up 0.6% q/q. Perhaps the large lift in part-time employment reflects employers’ attempts to be more flexible in an environment where they are finding it harder to fill vacancies (our estimate of the vacancy rate is the highest since 1994 – when data begins).

Labour supply growth was again strong. The working age population grew 0.7% q/q, while the participation rate lifted 0.1%pts to new all-time high of 70.6%. Together, this saw the labour force expand 0.9% q/q.

Nevertheless, this strong supply was not enough to avert a full reversal of Q4’s surprise lift in the unemployment rate, which dropped 0.3%pts to 4.9%. The underutilisation and underemployment rates fell too (we estimate the latter fell from 4.4% to 4.2% in seasonally adjusted terms), so the overall signal is one of a labour market that is tightening up. That is certainly consistent with anecdote, although we believe the tightness of the labour market is not just about the amount of spare labour available right now, but also the skills that available labour possesses. There does appear to be an increasing mismatch with what firms are looking for.

At face value, the softer hours worked figures suggest sluggish GDP growth in Q1. However, we are more inclined to see this as pointing to the potential for a decent lift in labour productivity, which has been weak of late.

Despite growing evidence of a tighter market, we are yet to see a clear lift in nominal wage growth. Our preferred measure of wage growth – the private sector Labour Cost Index – rose 0.4% q/q (in line with expectations), which is the seventh quarter of such an increase. Annual growth actually ticked down to 1.5% y/y, which is the softest in close to seven years, so if anything it was a little softer than expected.

It was a relatively benign signal across other wage measures too. The QES measure of private sector average hourly earnings lifted just 0.3% q/q (1.1% y/y) and the analytical LCI rose 0.7% q/q (2.9% y/y). Distributional and sectoral measures failed to provide much in the way of an alternative signal. The one positive is that total gross earnings are still running at a respectable 0.8% q/q (4.8% y/y) pace.

  Real wage growth has therefore softened. Up until now real wage growth has actually been reasonably strong, but the latest CPI increases have eaten into that. We suspect this very fact will be a key driver of higher nominal wage growth in the future, although there is little evidence of that yet."