New Zealand’s economy is still creating thousands of jobs, but record numbers entering the workforce could see unemployment stay above 5 per cent.
Figures due out on Wednesday are expected to show that in the first three months of the year the number of people employed in New Zealand grew by around 20,000 people, an increase of about 0.8 per cent.
However a combination of record net migration – which is currently adding about 6,000 a month to the population – and others attracted back to the workforce by a strong labour market could mean unemployment doesn’t drop.
At the end of 2016 unemployment unexpectedly jumped to 5.2 per cent despite the economy creating 20,000 new jobs in the final three months of the year.
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The jump came as the participation rate hit 70.5 per cent, an all time high.
With net migration gains continuing to hit new records at close to 72,000 a year, Kiwibank chief economist Zoe Wallis said although the number of jobs in the economy is still growing, unemployment may not drop.
Kiwibank has forecast that unemployment will stay at 5.2 per cent in the first quarter.
“Given what you’re seeing in terms of net migration and workforce participation, there’s a risk we could actually see employment growth fail to keep up with that increase in people in the workforce,” Wallis said.
“We’re expecting that to actually keep the unemployment rate relatively unchanged in the near term.”
Economists at Westpac estimate that the participation rate in the economy climbed to a new record high in the first quarter of the year, at 70.6 per cent.
“Job growth has encouraged more people to enter the labour market. This has been reinforced by strong net migration,” Westpac said in a note on Monday.
“These factors are providing a floor under the unemployment rate, which we expect to remain unchanged at 5.2 per cent.”
ANZ chief economist Cameron Bagrie said based on anecdotes around the economy, it would appear that labour supply was not keeping up with demand in the economy, with business surveys showing companies are finding it increasingly hard to find new staff.
“[W]hat is becoming increasingly clear is that the tightness of the labour market is not really about the amount of labour available right now, but the skills that available labour possesses,” Bagrie said.
“There seems to be an increasing mismatch with what firms are looking for.”
Despite this, ANZ is forecasting that the unemployment rate will fall back below 5 per cent by the second half of the year.