New Zealand Unemployment Rises as RBNZ Contemplates Rate Cut

(Bloomberg) -- New Zealand unemployment increased more than expected in the third quarter and employment growth slowed, adding to signs of a sluggish economy that could prompt the Reserve Bank to cut interest rates further next week.

The jobless rate rose to 4.2% from 3.9% in the second quarter, Statistics New Zealand said Wednesday in Wellington. Economists predicted an increase to 4.1%. Employment gained 0.2% from the previous three months and 0.9% from the year-earlier quarter -- the slowest annual pace since 2013.

Hiring is slowing as economic growth declines toward 2%, suggesting inflation could remain below the mid-point of the RBNZ’s 1-3% target for some time. Still, wages are picking up, the housing market is recovering and domestic price pressures are building, making next week’s rate decision a tough call.

While the majority of economists expect the RBNZ to cut the official cash rate to a fresh record low of 0.75% on Nov. 13, traders are less certain. There’s now a 61% chance of a cut, swaps data show, up from 56% earlier Wednesday but down from 100% last month. The Kiwi dollar dipped on today’s report. It bought 63.77 U.S. cents at 12:20 a.m. in Wellington, down from 63.89 cents immediately beforehand.

“The tightness we have seen in the labor market has seen underlying wage inflation start to lift, consistent with anecdotes that firms are struggling to find staff,” said Michael Callaghan, an economist at ANZ Bank New Zealand in Wellington. “But outside of regulated wage increases, underlying wage inflation is picking up only gradually –- and now the labor market is moving in the wrong direction.”

Total wages, which includes government workers, increased 0.8% in the quarter and 2.5% from a year earlier -- the biggest gain since 2009 -- after large pay settlements for nurses and teachers. Non-government, ordinary time wages increased 0.6% from the previous three months, when they gained 0.8%. They rose 2.3% from a year earlier.

New Zealand’s economy has been slowing amid a slump in business and consumer confidence. With indicators of hiring intentions and job advertising suggesting slower jobs growth, economists had forecast a reversal of the unexpected drop in unemployment to an 11-year low in the second quarter.

“The unemployment rate began what we expect to be a slow creep higher over the next 12 months,” said Mike Jones, senior economist at ASB Bank in Auckland. “The RBNZ has more work to do to ensure employment remains around its maximum sustainable level.”

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editor responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net

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