There’s More Slack In The Labour Market, As We Get Paid More Per Hour, But Get Fewer Hours

• Today's jobs report was weak. Although it was slightly better than we had expected. The unemployment rate rose to a 3-year high of 4.6%, with the participation rate rising to 71.7%. The underutilisation rate, a better measure of slack, lifted to 11.8% from 11.2%, as total hours worked fell 1.2% over the quarter.
• Wage inflation continued to rise, but at a slower pace. Annual wage growth has slowed to 3.6%, moving further – albeit slowly – away from the 4.5% peak. Weaker wage inflation should help drive an easing in domestic inflation. 65% of employees received a pay rise, which sounds good, but their hours are down. So you may earn more per hour, but you’re getting fewer hours.
• Amid the slowing economic landscape, the labour market should continue cooling from here. As demand for labour deteriorates, the unemployment rate is on track to exceed 5% by year-end – peeling further and further away from the 3.2% low.

Today’s jobs report was weak. Although, it was slightly better than we had expected. The rise in the unemployment rate was not as big of a jump. From an upwardly revised (really, a case of rounding – previously 4.3%) 4.4%), the unemployment rate rose to 4.6% - marginally below our estimate of 4.7%. It’s the highest it’s been since March 2021. Employment growth surprisingly lifted over the June quarter by 0.4%, against expectations of another quarterly decline. It’s likely a bit of payback from the 0.2% contraction at the beginning of the year. 12,000 more Kiwi entered employment over the quarter, with 10,000 of them women. Annually, employment growth has slowed to just 0.6% from 1.3%.

Another surprise was the lift in the labour participation rate. After hitting a record high of 72.4% in June 2023, the participation rate had begun its descent. But over the June 2024 quarter, it edged up – from an upwardly revised 71.6% (previously 71.5%) to 71.7%. Despite clear evidence of the decline in job ads, it seems that people are still trying their luck with the Kiwi labour market. The downtrend should resume over the coming year. As the economic slowdown continues, demand for workers will wane and people will head (or be forced) to the exits.

The underutilisation rate is a better measure of slack in the market. And the ongoing rise suggests that spare capacity within the broader market is growing. Over the June quarter, the underutilisation rate rose to 11.8% from 11.2% - the highest since March 2021. Measures beneath the umbrella term also moved higher with the underemployment rate – those working part-time and wanting more hours – rising from 4.1% to 4.2%.

The increase in spare capacity may likely have been larger if not for a slowing in labour supply. According to StatsNZ, working age population rose 0.4% in Q2, the smallest quarterly increase in two years. Annual growth has slowed to 2.6%. A sharp turnaround in net migration explains the slowdown. New migrants tend to arrive at a working age, helping to boost the talent pool. But the tap has now gone from an open fire hydrant to a leaking faucet. Labour supply is not growing as fast as it once did. Compared to June last year, the total labour force has expanded 1.6%, down from the 4.8% increase between 2022 and 2023.

In a sign of what’s to come, the number of hours worked declined the first time since September 2021. Over the quarter the (seasonally adjusted) total hours worked fell 1.2%. At the cusp of a downturn, firms typically try to hold onto their staff for as long as they can. And typically, hours are cut before headcount. The decline in hours over the June quarter may be the precursor to much bigger increases in unemployment in the coming year. Fewer hours worked is yet another early warning sign of a contraction in June quarter economic activity. Linked to the decline in hours worked was likely the 0.1% contraction of the full-time workforce, following the 0.3% decline in Q1. Annually, growth of the full-time workforce has slowed to just 0.3%. At the same time, the part-time workforce increased almost 2% over the June quarter.

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