New Zealand's unemployment rate rose to 5.7% in Q3, above forecasts, as employment fell and wage growth slowed.
Disappointment across all major indicators is expected to weigh on the New Zealand dollar and reduce market pricing for a rate hike in December. The kiwi was already trading near a cycle low against the Australian dollar after the RBNZ held rates last week, and the gap with a more hawkish RBA is set to widen. Weak employment numbers argue against tightening, but the RBNZâs hawkish members have focused on core inflation and fuel costs. A labour market miss alone may not settle the debate, so inflation expectations surveys later this month carry extra weight. Front-end swap rates are the market to watch for how far hike bets are scaled back.
Banks had expected unemployment to peak, but the labour market moved in the opposite direction, making the RBNZâs December rate increase a harder sell.
Key data:
New Zealandâs unemployment rate increased to 5.7% in the third quarter, exceeding the 5.5% forecast, as employment unexpectedly contracted and wage growth decelerated, according to Statistics New Zealand data released on Wednesday.
Employment slipped 0.1% from the prior quarter, against a Reuters poll estimate of a 0.4% rise. The participation rate fell to 70.4% from 70.6%, missing the 70.7% forecast. Unemployment rose even though fewer individuals were seeking work, suggesting weak hiring rather than an expanding labour force. Earlier figures were also revised lower, with second-quarter employment growth trimmed to 0.3% from 0.5%.
The result runs counter to bank predictions that had indicated a peak in joblessness. Westpac had expected the rate to ease to 5.5%, while ANZ had forecast no change at 5.6%. The June quarter reading of 5.6% was already the highest since 2015.
Wage pressures also eased. Private sector wages excluding overtime rose 0.4% in the quarter, below the 0.5% forecast, taking annual growth to 2.0% from 2.1%.
The data arrives at a sensitive time for the Reserve Bank of New Zealand. On 28 October it held the official cash rate at 2.75% in a 4:3 vote, surprising markets that had largely priced a hike. The majority cited weaker than expected inflation, stable inflation expectations and subdued wage growth, and argued that two earlier rate increases needed time to work. Wednesdayâs figures support that view on both jobs and pay.
Westpac had described todayâs release as the first key input before the RBNZâs next decision on 9 December, while still forecasting a hike at that meeting. The bank cautioned that a move was not guaranteed, and a softer labour market makes that case more difficult to argue.
New Zealand holds a general election on Saturday, adding further uncertainty to the policy outlook ahead of the December meeting.
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