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New Zealand jobless rate drops to 11-year low, wages surge

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New Zealand unemployment dropped to an 11-year low in the second quarter and wages surged after an increase in minimum pay rates.

[WELLINGTON] New Zealand unemployment dropped to an 11-year low in the second quarter and wages surged after an increase in minimum pay rates.

The jobless rate fell to 3.9 per cent from 4.2 per cent in the previous three months, Statistics New Zealand said Tuesday in Wellington - the lowest level since mid-2008 and significantly below economists' 4.3 per cent estimate. Hiring jumped 0.8 per cent from the first quarter while non-government wages also increased 0.8 per cent, the most in more than a decade.

The report is the final key piece of data before the Reserve Bank makes a decision on interest rates Wednesday against a backdrop of a cooling domestic economy and rate reductions by global peers. While signs of a tighter labour market are unlikely to deter the RBNZ from cutting the official cash rate to a record-low 1.25 per cent, they may steer it away from signaling a more aggressive easing cycle, some economists said.

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

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The Kiwi dollar jumped after the report. It bought 65.58 US cents at 12pm in Wellington from 65.27 cents immediately before the release.

New Zealand's economy has been slowing amid a slump in business and consumer confidence that has hurt hiring and spending. Economists had expected only a slight rebound in second-quarter employment after a decline in the previous three months, while indicators of hiring intentions and job advertising suggested slower annual jobs growth.

Instead, employment rose 1.7 per cent from a year earlier, compared with economists' estimate of 1.2 per cent. The labor force participation rate held steady at 70.4 per cent.

The Reserve Bank, which has maximum sustainable employment as part of its mandate, is likely to still focus on future trends for employment, said ANZ Bank New Zealand chief economist Sharon Zollner, who earlier today forecast three more rate cuts this year.

"‘The outlook for the labor market remains concerning," she said. "The labour market lags the overall activity cycle and there's no sign that domestic growth is going to recover sharply from here. We expect the unemployment rate to move up over the next year."

WAGES BOOST

New Zealand wage inflation, which has been relatively benign despite a declining jobless rate and skills shortages in many industries, received a shot in the arm from the government's increase in the minimum hourly pay rate, which took effect on April 1.

The statistics agency estimated about 0.2 percentage point of the 0.8 per cent quarterly gain in non-government, ordinary time wages reflected the minimum wage adjustment.

"The tightness seen so far in the labor market has started to lift underlying wage inflation higher, and is consistent with anecdotes that firms are struggling with cost pressures," said Ms Zollner. Still, "outside of regulated wage increases, underlying wage inflation is picking up only very slowly," she said.

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