Solid jobs numbers won't sway RBNZ - economists

By Rebecca Howard

Aug. 6 (BusinessDesk) - New Zealand’s unemployment rate hit an 11-year low, but economists say the data won’t put off tomorrow’s widely expected rate cut and most say it doesn’t change anything down the track.

The central bank is expected to cut rates by 25 basis points to a record low 1.25 percent at tomorrow’s review. The focus, however, will be on its forecasts and any comment around future plans for interest rates. Most economists are expecting at least one more cut this year to 1.00 percent. Some are expecting rates to go to 0.75 percent, even after today’s data.

New Zealand’s seasonally adjusted unemployment rate fell to 3.9 percent in the three months ended June 30, from 4.2 percent in the March quarter, Stats NZ said. Economists surveyed by Bloomberg and the central bank had tipped the unemployment rate to lift to 4.3 percent.

Wages – both public and private sector – also lifted. Across both sectors, wage inflation rose 0.7 percent during the quarter for an annual increase of 2.1 percent.

ANZ Bank economist Michael Callaghan agreed the data was “surprisingly solid” but pointed to other signs of weakness in the broader economy.

“We are wary of reading too much into the release given the volatile and lagging nature of this data, particularly in the context of the slowing economy, weak employment intentions, and falling job ads.”

He said the data could weigh on the tone of the Monetary Policy Committee statement and press conference but ANZ now expects further rate cuts in September and November, taking the official cash rate to 0.75 percent by year-end.

ANZ Bank changed its call because it expects the global dataflow to continue to deteriorate between August and September.

“Global risks have escalated dramatically in recent days as Trump imposed further tariffs on China’s imports, and China retaliated by stopping purchases of US agricultural goods and allowing the yuan to depreciate through the key psychological level of 7 to the US dollar,” said chief economist Sharon Zollner.

ASB Bank said that while the jobs data had “confounded” expectations, it doesn’t change its view on RBNZ policy.

"We still expect a 25bps rate cut tomorrow and a further cut in November, taking the OCR to 1 percent.”

Senior economist Mike Jones said “more timely indicators suggest the worm has turned for the labour market. The broader economic slowdown now looks entrenched and will likely translate into additional labour market slack ahead.”

ASB's Jones noted firms are reporting acute margin pressures and employment intentions are consistent with firms cutting staff.

“More policy support will be required to keep employment near its maximum sustainable level.”

Westpac Bank doesn’t entirely agree.

“This data will not affect the RBNZ’s OCR decision tomorrow – we still think a cut is all but assured. However, prior to this data we were actively considering the possibility of the RBNZ following up with another cut in September. This strong labour market report reduces the odds of a September cut,” senior economist Michael Gordon said.

BNZ head of research Stephen Toplis said today's data shouldn't divert the RBNZ from cutting interest rates tomorrow and while “it will provide a source of discussion about future rate decisions” he expects the central bank to maintain an easing bias due to global risks.

“The only real question is the extent to which the tug-of-war between the domestic real data and international risk determines the extent of what is now an easing cycle,” he said.

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