The Kiwi Labour Market Is Softening, Following A Recession. Unemployment Continues To Climb

• Stats NZ’s suite of labour market data is out on Wednesday. The Kiwi labour market likely loosened further over the June quarter. We expect the unemployment rate lifted to 4.7% from 4.3% - the highest since the end of 2020.
• The moderation in wage inflation likely continued in Q2. We expect wages rose 0.8% over the quarter, with the annual bill falling to 3.5% from 3.8%. Weaker wage inflation should help drive an easing in domestic inflation.
• Amid the slowing economic landscape, the labour market should continue cooling in the coming year. As demand for labour wanes, the unemployment rate is still on track to exceed 5% in coming quarters.

Get ready for another key data release ahead of the RBNZ’s August meeting. Next Wednesday, Stats NZ will provide an update on how the Kiwi jobs market fared over the June quarter. And we expect a continued loosening in labour market conditions. By our calculations, the unemployment rate likely lifted to 4.7% from 4.3%. That would mark the highest rate since the end of 2020. After being stuck at record low levels of 3.2%, the unemployment rate began to climb in June last year. Next Wednesday’s update will likely confirm that it remains in an uptrend.

In light of growing talk and market speculation for earlier RBNZ rate cuts, Wednesday’s release holds high importance. Our estimates of the Kiwi labour market are slightly softer than the RBNZ’s forecasts composed in May. The RBNZ expects a rise in the unemployment rate to 4.6% and a slowdown in annual wage growth to 3.6%. Soft high-frequency indicators however suggest that the risks are skewed to a weaker labour market than the RBNZ assumed. At the July policy review, we saw the RBNZ soften its tone. If the labour market release plays to our forecasts, or even softer, then we will likely see the RBNZ double down its dovish tilt in August. We remain of the view that the RBNZ will hike rates earlier than they currently expect, with the cutting cycle commencing in November.

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