New Zealand unemployment falls to 5.3% in Q1, beating forecasts ahead of war impact

New Zealand's unemployment rate fell to 5.3% in Q1, beating the 5.4% forecast, but economists warn the labour market impact of the Middle East conflict is still six to twelve months away.

Summary:

• New Zealand's unemployment rate fell to 5.3% in Q1, below the 5.4% forecast and prior reading of 5.4%, according to Statistics New Zealand
• Employment rose 0.2% quarter on quarter, missing the 0.3% estimate and slowing from the prior 0.5% gain, per Statistics New Zealand
• The participation rate came in at 70.4%, slightly below the prior 70.5%, with no consensus estimate available, according to the data release
• The Labour Cost Index rose 0.5% quarter on quarter, above the 0.4% estimate and prior reading, with annual growth holding at 2.0% in line with forecasts, per Statistics New Zealand
• The seasonally adjusted NEET rate, measuring youth aged 15 to 24 not in employment, education or training, rose slightly in the quarter, according to Statistics New Zealand

New Zealand's unemployment rate edged lower than expected in the first quarter, offering a modestly encouraging read on the labour market even as economists cautioned the data captured only the earliest stages of the economic disruption flowing from the Middle East conflict.

The jobless rate fell to 5.3% in the three months to March, according to Statistics New Zealand, coming in below both the 5.4% consensus forecast and the prior quarter's reading. The result aligned with the Reserve Bank of New Zealand's own projection. Employment rose 0.2% over the quarter, falling short of the 0.3% estimate and representing a clear step down from the 0.5% gain recorded in the December quarter.

Key data points from the release were as follows.

• Unemployment rate: 5.3%, expected 5.4%, prior 5.4%.
• Employment change quarter on quarter: 0.2%, expected 0.3%, prior 0.5%.
• Participation rate: 70.4%, prior 70.5%.
• Labour Cost Index quarter on quarter: 0.5%, expected 0.4%, prior 0.4%.
• Labour Cost Index year on year: 2.0%, expected 2.0%, prior 2.0%.

The participation rate dipped to 70.4% from 70.5% in the prior quarter, marginally below the 70.5% forecast. Statistics New Zealand also noted a slight rise in the seasonally adjusted NEET rate, the proportion of 15 to 24 year olds not in employment, education or training, adding a note of caution to the otherwise solid headline figures.

On wages, the private sector Labour Cost Index excluding overtime rose 0.5% in the quarter, an acceleration from the 0.4% increase recorded in the prior period, leaving annual growth at 2.0%. The RBNZ will monitor wage data closely for any signs that price pressures are becoming entrenched, particularly as the energy shock from the Middle East filters through to broader costs.

Economists were broadly cautious about reading too much into the Q1 figures, noting that the US-Israel military campaign against Iran began on 28 February and that the full labour market consequences of the conflict were unlikely to become visible for another six to twelve months. The data is therefore likely to function as a pre-shock baseline for policymakers rather than a reliable guide to near-term conditions.

Earlier:

• RBNZ says financial system resilient but Middle East conflict to slow recovery

Next Reserve Bank of New Zealand meeting is May 27:

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The slightly better-than-expected unemployment print gives the RBNZ modest breathing room as it holds rates at 2.25% and monitors the Middle East fallout, but the market reaction is likely to be muted given the widely acknowledged lag between the conflict's onset and its labour market impact. Wage growth coming in at 0.5% for the quarter, a touch above the prior 0.4%, will keep the central bank alert to any entrenchment of price pressures, particularly as it prepares to update its forecasts at the end of May. With economists broadly expecting the true employment impact of the Iran war not to materialise for six to twelve months, today's data is likely to be viewed as a pre-shock baseline rather than a signal of underlying resilience.