Job market strength seals cash rate lift

Labour market data to March 2023 has highlighted ongoing strength in the job market and sharply higher wages – the data will reinforce the Reserve Bank of New Zealand’s case for an increase to the official cash rate at its 24 May review.

At a headline level, the unemployment rate was steady at 3.4% during the March quarter, and is up from 3.2% a year ago. But let’s not get too caught up in this marginal increase, as unemployment is bloody low and digging beneath the surface shows incredible resilience to the labour market:

  • 22,000 more people were employed in the March quarter, with just 2,000 additional unemployed.
  • Participation in the labour market surged – women drove this increase to reach a record participation rate.
  • The labour market was able to absorb a 22,000 quarterly increase in working-age population, driven by a sharp lift in net migration.
  • Average hourly earnings have risen 7.6%pa over the past year – compared to 4.8%pa this time last year.

There are still risks brewing for the labour market, particularly when one considers relatively weak hiring intentions in business surveys, and media reports of some major employers slimming their workforce in preparation for anticipated turbulent times ahead. However, given that wage pressures are persisting, and labour market softness is not yet flowing through into real outcomes, the Reserve Bank is likely to err on the side of caution and raise the official cash rate again in three weeks in an attempt to force a ‘cooling of the jets’.