Wednesday, August 25, 2010

NZ dollar heads down towards US 70c

The New Zealand dollar fell to its lowest level against the yen in three months and headed down toward support at US70c as international events continued to dictate direction in a week with little in the local economic diary.

The NZ dollar was at US70.15c at 5pm, down from US70.47c at 8am. It had fallen throughout yesterday from US71.25c to nearly US70c shortly after midnight then started to move upward, rising after news that sales of previously occupied homes in the United States during July fell to the lowest level in 15 years.

ANZ said market sentiment was negative through last night's session, weighing on offshore equities and initially sending currencies, the NZ dollar included, lower against the US dollar and the yen.

"The US dollar's fortunes reversed after abysmal US housing data saw a swift US dollar sell off, allowing the NZ dollar to move back to mid-range levels," ANZ said.

Westpac said that the Australian and New Zealand dollars look heavy, and should break below major support levels during the next few sessions.

In the Australian dollar's case the level is US88c. It was at US88.37c at 5pm, from US88.76c at the same time yesterday.

In the New Zealand dollar's case the support level was US70c.

The yen has been at a 15-year peak against the US dollar but retreated slightly today on speculation that Japanese authorities will intervene to knock it back down.

The NZ dollar dropped to 59.11 yen at 5pm from 59.70 yen at the same time yesterday.

It was at 0.5547 euro 5pm from 0.5559 at the same time yesterday.

The NZ dollar was at A79.37c at 5pm, down from A79.72c at 8am but up from A79.19c at 5pm yesterday.

The trade weighted index was at 65.91 at 5pm from 66.09 at the same time yesterday.


Tuesday, August 24, 2010

Kiwi dollar tipped to weaken on Aust election drama

The New Zealand dollar may fall below 70 US cents this week as investors wait on the outcome of Australia's Federal election, which failed to deliver a clear result.

Five of seven economists and strategists in a BusinessDesk survey were downbeat on the currency this week after Saturday's election raised the prospect of a hamstrung executive.

Neither the reigning Labor Party nor the Liberal Coalition secured a majority.

The two remaining strategists are picking the kiwi will trade in a range this week.

Initial market reaction was to push the kiwi higher to 70.57 US cents from 70.25 cents on Friday in New York, and it gained to 79.44 Australian cents from 79.16 cents as investors eschewed the so-called 'lucky country' in favour of New Zealand amid the uncertainty over the election.

However, currency strategists don't expect this trend to hold.

"The kiwi's going with it (the Australian dollar) to some extent, and this could be the catalyst to break 70 US cents,"said Imre Speizer, markets strategist at Westpac Bank.

"It's going to be a volatile week with weakness hovering over the Aussie."

Speizer predicts the kiwi will fall against the greenback this week as a general downbeat tone among investors keeps them shying away from yields on offer in Australia and New Zealand.

Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia, forecasts the New Zealand currency to make a "gradual drift off" towards 69 US cents, though the kiwi will get some early support as investors jump out of Australia and into New Zealand.

Central bankers from around the world will gather in Jackson Hole in Wyoming in the annual Federal Reserve forum on Thursday.

Fed chairman Ben Bernanke's keynote address on Friday will be watched with interest by market-makers.

The local data calendar is almost bare, with the Reserve Bank's survey of inflation expectations the only release of note, though it's unlikely to be market-moving.

Mike Jones, strategist at Bank of New Zealand, said the two-year expectation will be one to watch, and any prediction above 3 per cent, which is outside the central bank's target band, could see the kiwi rally as investors boost their pricing for an interest rate hike.

Investors have been paring back their forecast track for the official cash rate as the economy cooled down, and they're picking 54 basis points of hikes over the next year, according to the Overnight Index Swap curve.

Nervous investors are still waiting to see what comes, if anything, of a proposed meeting between Japan's Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa.

The yen's strength has been a cause of concern, and markets have been chattering that the central bank is poised to intervene.

Khoon Goh, ANZ New Zealand head of market economics and strategy, said the Bank of Japan would need a coordinated approach for intervention to succeed, and with most countries wanting to devalue their currencies, the bank can't intervene successfully.

The kiwi climbed to 60.45 yen from 60.03 yen on Friday in New York. The seven strategists surveyed by BusinessDesk are more divided on where the currency will go on a trade-weighted basis, with four having a negative bias, though only one is calling an outright decline, and three expecting it to go sideways this week.

The kiwi rose to 66.32 on the TWI from 65.91 last week.

European Central Bank council member Axel Weber told Bloomberg TV that Europe needs to keep its stimulus in place until the end of the year, wiping any upbeat sentiment investors have about the state of the region, while sovereign debt continues to plague Europe's outlook.

BNZ's Jones said credit default swap spreads widened last week, and the region's sovereign debt is still a concern for the market. The kiwi climbed to 55.56 euro cents from 55.26 cents on Friday in New York, and was little changed at 45.35 pence from 45.27 pence.

On the radar this week is American housing data and the Richmond Federal Reserve's manufacturing index. An estimate of second-quarter growth in the US Germany's IFO survey will also come under scrutiny as Europe's biggest economy continues to bear the brunt of the region's recovery.

Wednesday, August 11, 2010

Australia growing faster, Govt admits

Finance Minister Bill English has admitted Australia's economic growth is outstripping New Zealand's and says that in the long term the Government is determined to turn that around.

Mr English and Prime Minister John Key have been under pressure in Parliament over National's commitment to close the wage gap with Australia, with Labour saying it is widening and accusing the Government of failing to do anything about it.

Mr English today said Australia had a higher growth rate because its economy had not been in recession, and because of the huge demand for its minerals.

"Australia's mineral boom is likely to mean it will perform better than New Zealand in the near term, but it is the long-term trend we are determined to turn around," he said.

"The only way we can permanently lift New Zealand's economic growth is through considered and consistent reform and change year after year."

He said New Zealand's economic growth in the three years to 2008 had been unbalanced and sluggish, and while Australia's economy grew by 11.5 per cent in the four years to March this year, New Zealand's grew by just 2 per cent.

Australia's minerals were in such high demand they made up 70 per cent of its exports, while New Zealand's leading export industry, the dairy sector, made up 20 per cent of exports and prices had not increased by as much as those for minerals.

Labour's finance spokesman, David Cunliffe, has been leading the attack over the wage gap.

He said today Mr English's claim that National inherited a bad economic situation ignored Labour's achievements, such as the world's lowest unemployment rate, the longest post-war economic expansion and halving gross government debt while pre-funding superannuation.

"Every time Bill English repeats his mantra it sounds thinner and more ridiculous," Mr Cunliffe said.


Lifestyle No 1 reason for investor migrants Lifestyle No 1 reason for investor migrants

New Zealand's lifestyle is more important than business and tax issues to migrants moving here, a study has found.

A dozen investor migrants and one investor's wife were interviewed for an Immigration New Zealand and Investment New Zealand-commissioned study aimed at finding messages to lure potential investor migrants.

"It is clear that this decision to migrate is a heart decision ... emotive topics were far more resonant for these migrants than facts and rationality," the report said.

"Business and tax issues came a distant second to lifestyle and community."

Thirty 30 potential messages were developed for the research, and the migrants were asked to select the message that appeal most strongly to them.

The top two messages were "New Zealand is a great place to bring up a family" and "New Zealand is a small country with a strong sense of community".

A message that strongly did not find favour at all was "Investing in New Zealand isn't about just relocating - it's about regenerating your business."

Any references made to "government" - such as one that said "The New Zealand Government understands it takes time to get your offshore tax affairs in order" - also didn't go down well.

Some said it was difficult to establish business networks.

"I've been here for one and a half years and am just finding my way in. It's a much smaller market and difficult to get established," one said.

"Children are a critical element in the migration decision," the report said.

"When young they are clearly an important motivating factor but by the time they hit the teen years they can become a barrier."

A senior marketing lecturer at Massey University, Dr Henry Chung, said the study confirmed what many already knew.

"The wealthy see the investor migrant category as a pathway to come to New Zealand, usually for the lifestyle or for their children, and not necessarily to do business or make money.

"New Zealand is such a small economy, and usually, a would-be business migrant would be better off staying put in their country of origin."

By Lincoln Tan

Monday, August 9, 2010

Ten reasons why house prices have 10pc to fall

I want to detail 10 reasons why I think house prices have another 10 per cent to fall, but first a bit of background.

Back in March 2008 before the Global Financial Crisis hit and before finance companies collapsed en masse, I predicted house prices would fall 30 per cent from their late 2007 peaks.

I got a lot of stick for saying such an outrageous thing. Our Home Loan Affordability analysis showed then that prices were unaffordable for most and I was worried about the stability of the global financial system, although not the New Zealand system.

I thought New Zealand house prices had been pumped up with NZ$100 billion of foreign debt over the past 5 years and would subside once the cheap foreign credit dried up.

Then most of the property finance companies collapsed through May, June and July of 2008. Lehman Brothers and AIG collapsed in September 2008 and global credit markets froze through until early 2009. All hell appeared to be breaking loose and there was genuine fear for the future of the financial system.

In early October Australasia's banks were granted government guarantees and between July 2008 and April 2009 the Reserve Bank of New Zealand cut the Official Cash Rate from 8.25 per cent to 2.5 per cent, helping to bring the 2 year mortgage rate down from over 9 per cent to under 6 per cent. This stabilised the economy and the housing market, where prices had fallen as much as 11 per cent by early 2009.

So in early 2009 I revised my view on house prices to a fall from the late 2007 peak of 15 per cent, rather than the 30 per cent I forecast a year earlier. House prices bounced through mid 2009 thanks to the drop in interest rates and the decision by many investors to abandon low interest rates in banks, a collapsing finance company sector and a discredited stock market to put yet more leveraged cash into rental property.

Also, it appeared, New Zealand's economy had dodged a bullet because of our stable banking system and our close connections to the strong-growing Australian and Chinese economies.

But the fundamental problems had not gone away. Housing was still vastly overvalued compared to incomes, households were carrying too much debt, and the cheap foreign credit had dried up.

And now those fundamentals are coming home to roost.

In the last six to eight weeks the sheer weight of these problems has ground down growth in the economy and the housing market to a virtual standstill.

Reports on the housing market from Quotable Value, REINZ, Barfoot and Thompson and First National indicate the winter of 2010 has been awful for the housing market. Buyers have gone into their shells and those that haven't are demanding price reductions.

Those that still want to borrow are reporting the banks are being cautious about Loan to Value ratios and the types of property being bought, in particular apartments, townhouses and sections.

Two events locally and one internationally seem to have been the catalysts for this slowdown. The May 20 Budget was initially welcomed by property investors as being a weaker crackdown on property tax breaks than they had feared, but it was still a crackdown of sorts.

Also, the Reserve Bank's widely expected decision to start putting up the Official Cash Rate from June 10 appears to have shocked those who thought interest rates would stay low for a long time. The European Financial Crisis in May to June was the final nail in the coffin.

So now prices are falling again.

Here's why I think they have another 10 per cent to fall, taking the fall from the late 2007 peak to 15 per cent. QV figures show prices are now down 4.7 per cent from the late 2007 peak.

1. The cheap foreign credit has dried up

Before the Global Financial Crisis banks could borrow as much as they wanted for around 15 basis points above the prevailing wholesale interest rates. That cost rose above 200 basis points early in 2009 before subsiding to around 120 basis points earlier this year.

The European Financial Crisis boosted that cost to back over 150 basis points and now it's clear that the cost is never going back to the 'normal' levels of 2002-2007 when New Zealand's banks borrowed almost NZ$100 billion on these 'hot' money markets and passed it on to home buyers at a sharp margin.

This chart shows how much those margins have risen during the crisis. Interest rates are likely to remain around 1 percentage points higher than they would otherwise have been.

This makes it harder for the banks to offer fixed mortgage rates that are significantly cheaper than floating rates and keeps the margin between mortgage rates and the OCR relatively high.

2. Home loans remain unaffordable for most in the bigger cities

The Roost Home Loan Affordability reports that we prepare show that it still takes 61.8 per cent of a single median income earner's after tax pay to afford an 80 per cent mortgage on a median priced property in New Zealand.

In Auckland Wellington, Hamilton, Tauranga, Queenstown, Nelson and Christchurch that portion of after tax income is between 65-75 per cent.

New Zealand's house price to gross income multiples are still well above historic norms and those of other countries such as Britain and America, albeit not Australia.

Those with two incomes in provincial cities such as Wanganui, Palmerston North, Invercargill, Whangarei and New Plymouth can still afford to buy a house, while first home buyers with two incomes can also afford a cheaper property in these markets.

Rodney Dickens makes the point in his piece about the property outlook here.

3. New Zealanders are migrating to Australia again.

The exodus of New Zealanders to Australia through 2008 was a major reason for the decline in house prices through mid to late 2008.

During 2009 the exodus slowed as the Australian economy slowed, but it has restarted again in recent months as Australian wages are now growing at a rate of 5.5 per cent while New Zealand wages are growing around 1.5 per cent.

Australia's unemployment rate has fallen to 5.1 per cent versus New Zealand's on 6.8 per cent. The likely reduction in non-New Zealand immigration to Australia after the upcoming Australian election will intensify the pressure for New Zealanders to migrate to Australia. The wage gap between Australia's average weekly earnings and New Zealand average weekly earnings has blown out to NZ$643 from NZ$565 in the last two years.

That translates into an annual gross wage gap of NZ$33,400, up from NZ$23,000 two years ago. New Zealand wages are now on average worth 60 per cent of the Australian equivalent, down from 66 per cent two years earlier.

At current wage growth and exchange rates, New Zealand wages will be half those in Australia within 7 years. By then annual wages will be NZ$65,000 higher in Australia than New Zealand.

4. The property tax changes are hurting more than expected

The tax changes in the 2010 Budget were less than some had expected or hoped or feared, depending on your exposure to property. But they are having a real impact on demand for residential investment property, particularly by those already heavily geared.

It is forcing many to ask whether than can afford to take the risk of going negatively geared when they may not be able to claim so much of the losses back against their regular incomes.

The IRD is also cracking down around the fringes of the property trading, LAQC and family trust areas. The recent Penny vs Hooper case has sent a chill through the sector.

Independent economist Rodney Dickens believes the property tax changes are having as big an impact on property demand as a 100-150 basis point increase in the OCR.

5. The developed world is deleveraging from property bubbles

The forces of deleveraging globally cannot be underestimated. The scale of the debt now embedded into developed economies in Britain, Europe and America is enormous.

Consumers, in particular, but also governments, will spend at least 20 to 30 years either repaying or restructuring debt to reduce their debt loads.

This chart here shows the scale of the debt in the US economy, the world's biggest. To reduce leverage levels to anything near normal will take decades of slower growth, less consumption, more savings and higher interest rates. Debt is now much higher than it ever was before the 1929 Depression.

New Zealand's banks depend on these international funding markets and will be affected in one way or another by this huge sinking lid of deleveraging.

6. NZ households have hit debt saturation point

New Zealand's household debt to disposable income hit a peak of 159 per cent in the fourth quarter of 2008, right at the time of the Global Financial Crisis. Since then it has been trending down as New Zealanders chose either not to take on any more debt or chose to repay debt.

Reserve Bank figures show many New Zealanders either left their mortgage repayments at relatively high levels, even though interest rates had fallen, or 'downsized' their houses and repaid debt.

Leverage is reducing. It has a long way to get back to 'normal' levels of around 100 per cent, which is widely seen as the sustainable maximum for any government or household.

To get back to around 100 per cent, New Zealand's household sector would have to repay around NZ$45 billion of debt over the next five to seven years.

House prices will not rise without the impetus of extra debt.

7. Our debt is relatively high compared to many others

New Zealand's household debt to disposable income ratio is actually higher than some of the countries such as Britain, America, Spain and Italy, who are seen as heavily indebted and in danger of being ostracised by lenders.

New Zealand is lucky in that government or sovereign debt is much lower than in those countries, but it's the reason why our government can't afford to 'pump' up the economy with deficit spending.

That will restrain the ability of our government to restart economic growth with heavy government spending.

The risk is that foreign lenders will work out how indebted we are and increase our interest rates.

8. Rents are not increasing in most places

Data from the Department of Building and Housing up until the end of June shows the median rent across New Zealand has been flat since December 2008 at NZ$300/week.

However, they have risen in Auckland in recent months, particularly for larger houses rather than apartments.

However, rental growth remains significantly below inflation and has stubbornly remained less than growth in house prices.

Landlords looking to increase rents more than wage growth have consistently failed to impose such increases.

Increasing costs and the potential removal of tax breaks will dampen demand from residential property investors, given rental growth will not be enough to compensate for higher costs and the removal of tax breaks.

That sends a new chill across the market.

9. Banks face even more funding pressure

The pressure from the big banks to pass on increased funding costs and to restrict their lending growth will become more rather than less intense in the coming two to three years. This will keep the pressure up on interest rates and ensure banks remain cautious.

European and US banks have to replace over US$2 trillion worth of funding in the coming 18 months, raising the likely cost of such funding on international markets.

The Reserve Bank's Core Funding Ratio (CFR) is expected to increase from 65 per cent to 75 per cent over the next two years, forcing the banks to raise more funds from the expensive long term and local funding markets rather than the cheaper 'hot' short term money markets.

The likely imposition, albeit slowly, of tougher rules for capital and leverage by the Basel Committee for international capital rules will also keep credit growth contained in coming years.

10. The baby boomers will start selling down their houses and rental properties to free up cash

Fresh research published over the weekend by the Bank for International Settlements estimates real New Zealand house prices could fall more than 35 per cent over the next 40 years as a growing population of elderly are forced to sell assets to a smaller population of younger people to fund their retirement and health care costs.

By Bernard Hickey

Friday, August 6, 2010

Unemployment jump puts pressure on RBNZ

A surprisingly large rise in the unemployment rate in the June quarter is putting pressure of the Reserve Bank of New Zealand (RBNZ) to stop hiking interest rates.

Many economists believe the central bank will hike up the official cash rate - now at 3 per cent - once more at its next policy review on September 16, then pause.

Some question that scenario and predict the monetary policy tightening from historic lows begun in June is now on hold.

The New Zealand unemployment rate rose to 6.8 per cent in the June quarter, reversing most of a sharp fall in the March quarter, according to the Household Labour Force Survey published today by Statistics New Zealand.

The New Zealand dollar fell immediately to US72.75c from US73.52c but consolidated at lower levels.

The 6.8 per cent unemployment rate was significantly higher than economists predicted and resulted from the number of unemployed people growing at a faster rate than the labour force.

In May, Statistics NZ stunned financial markets by reporting the March quarter unemployment rate fell 1.1 percentage points to 6 per cent. It was the first fall in the rate since the December 2007 quarter, and the largest fall since the survey began in March 1986.

"This rise in unemployment follows an unseasonal drop recorded in the March 2010 quarter and indicates a period of volatility in the labour market," Statistics NZ said today.

The RBNZ was expecting a steady unemployment rate of 6 per cent, but economists said it should now pause for thought.

"We believe the Reserve Bank should now be pausing. The domestic economic recovery is lacklustre and commodity price support is waning," said Goldman Sach JBWere economist Philip Borkin.

Westpac senior currency strategist Imre Spezier said the headline grabbing number raised questions about the quality of the survey and caused people to question if the Reserve Bank will hike, but the detail in the survey was positive.

"It has increased the chances of a pause next month but we still think they will go," he said.

To go in two quarters from an unemployment rate of 7.1 per cent to one of 6.8 per cent was more in line with history and consistent with other data on the economy, said Speizer.

Borkin said the headline unemployment number likely overstated the weakness in the labour market.

"The fall in employment was entirely driven by a 1.6 per cent quarter-on-quarter fall in part-timers. Full-time employment rose 0.2 per cent," he said.

Hours worked rose 0.6 per cent, suggesting that firms are looking to utilise more labour resources. The participation rate was unchanged 68 per cent.

Borkin sees a 60 per cent chance of a pause at the next review, and expects the official cash rate to stay at 3 per cent for the rest of 2010.

ASB economist Jane Turner still expected a rate increase in September, followed by a pause in October and December and was predicting a cycle peak of a 4.5 per cent, down from 5 per cent previously.


Thursday, August 5, 2010

Dollar falls as unemployment up

The New Zealand dollar fell after unemployment data for the June quarter surprised on the upside after surprising on the downside last quarter.

Investors are scratching their heads but said the 6.8 per cent unemployment rate in the June quarter is consistent with a slow recovery and increased the chance that the Reserve Bank of New Zealand (RBNZ) will pause in its next interest rate review or the one after that.

The drop in the unemployment rate from 7.1 per cent to 6 per cent in the March quarter had been hard to reconcile.

The NZ dollar fell sharply on today's data from US73.57c to US72.75c but quickly consolidated and was at US72.95c by 5pm. It was US73.52c at 8am compared with US73.44c at 5pm yesterday.

"There was a big reaction immediately and then it stabilised quickly," said Imre Speizer, senior currency strategist at Westpac.

He said the headline grabbing unemployment number raised questions about the quality of the survey and caused people to question if the RBNZ would hike next month, but the detail in the survey was positive.

"It has increased the chances of a pause next month but we still think they will go," he said.

To go in two quarters from an unemployment rate of 7.1 per cent to one of 6.8 per cent was more in line with history and consistent with other data on the economy.

But the central bank was not getting traction with its monetary policy tightening because yields in the wholesale money market have fallen, rather than risen.

The two-year swap rate has fallen around 40 basis points since the RBNZ started tightening. It fell around five to seven basis points to 6.39 per cent today.

The NZ dollar also fell against the Australian dollar to be A79.68c by 5pm from A80.16c at 8am and A80.49c at 5pm yesterday.

It was at 0.5544 euro from 0.5558 yesterday, and 62.83 yen from 62.72.

The trade weighted index fell to 67.37 by 5pm from 67.68 at the same time yesterday.


Tuesday, August 3, 2010

Forecasters expecting jobless rate to rise

Economists expect the June quarter's unemployment rate, due on Thursday, to retrace some of the March quarter's jaw-dropping decline from 7.1 to 6 per cent.

The consensus among forecasters is that the unemployment rate will rise to 6.4 per cent, reflecting a rise of 0.4 per cent or 8700 in the number of people employed.

That would represent a slowdown in job growth from the outsized 1 per cent increase recorded in the March quarter.

Business sentiment surveys support the big-picture conclusion that the employment cycle has turned into a recovery phase.

The Institute of Economic Research's quarterly survey of business opinion has recorded steadily rising reported employment levels for a year now, while hiring intentions are slightly above their long-run average.

ANZ chief economist Cameron Bagrie said the survey's findings suggested continued modest improvement in employment, while the National Bank's business outlook survey indicated the possibility of a more sizeable increase, in spite of declining hiring intentions since May.

ANZ is picking an unemployment rate of 6.3 per cent.

Bank of New Zealand head of research Stephen Toplis said that with the Reserve Bank seeming to have relaxed the urgency with which it intended to raise interest rates, all eyes would be on Thursday's data to see if they corroborated the bank's newfound pessimism.

But Statistics New Zealand's household labour force survey, the official measure of unemployment, has been erratic of late. Since June last year it has recorded unemployment rates of 5.9, 6.5, 7.1 and 6 per cent.

"This means that two of the four largest movements in the [24-year] history of the series have occurred in the last year. Given this degree of volatility, almost any outcome should be taken with a pinch of salt, especially by policymakers," Toplis said.

BNZ's pick for the unemployment rate is 6.3 per cent.

Westpac research economist Dominick Stephens is forecasting 6.2 per cent. A lot depended on the reason for the exceptionally steep fall recorded in the March quarter, he said.

It could have been a sampling error - always a possibility when extrapolating from a survey, even a large one like the labour force survey which covers about 30,000 people - or problems with seasonal adjustment.

The normal pattern is for a rise in employment in the December quarter, to do with the holidays and seasonal work in agriculture, which is then reversed in the March quarter, a pattern the statisticians adjust for.

But this year it broke down. The number of people unemployed did not rise as usual in the March quarter. It fell 5400 in raw or unadjusted terms. The average for the past 25 years has been an increase of 11,000.

If the March number was a statistical aberration, as many market economists believe, an upward correction in the June data can be expected.

However, the other possible explanation for the March quarter's surprise, Stephens said, was that forecasters got it badly wrong and the household survey correctly reported what had happened.

"After all, the consensus of New Zealand economists has a poor record in forecasting unemployment, with a consistent bias towards forecasts that are too high," he said.

"Perhaps employers are finding it easier to find workers now, whereas employment growth was hamstrung by a shortage of workers in the last decade."

The Department of Labour reports that the number of skilled jobs advertised online rose 10 per cent in the June quarter, continuing a year-long improving trend. But skilled job ads remain 31 per cent below their peak in March 2008.


6 per cent - Unemployment rate in March quarter, down from 7.1 per cent in the December quarter.
6.4 per cent - Consensus forecast of unemployment rate for June quarter.

Wages and salaries rising slightly, says Stats NZ

Salaries and wages are going up slowly, with a small rise in the June quarter showing employment is barely picking up.

The labour cost index (LCI) published by Statistics New Zealand (SNZ) today put the annual rate of salary and wage growth, including overtime, at 1.6 per cent, and 0.4 per cent in the June quarter.

This follows an increase of 1.5 per cent in the year to the March 2010 quarter, and a steady decline in the growth of salary and wage rates, including overtime, from a peak of 4 per cent in the year to September 2008.

The salary and wages rates went up for both the public sector by 2.1 per cent and the private sector by 1.5 per cent in the year to June.

The quarterly employment survey (QES), also published today, found an increase of 2.5 per cent in total paid hours in the year to June - the first annual increase in total paid hours after six consecutive quarters of annual decline.

And full-time employees rose by 1.3 per cent, increasing on an annual basis for the first time since the September 2008 year.

SNZ said the major contributors were the professional, scientific, technical, administrative, and support services; and the arts, recreation, and other services industries.

The average total hourly earnings rose by 2.1 per cent for the year, following an identical result in the year to March, which had been the lowest annual increase since the same increase in the December 2004 year.

SNZ said seasonally adjusted, total gross earnings rose 1.8 per cent for the June 2010 quarter, while seasonally adjusted paid hours went up 1.2 per cent.