Economists Predict Unemployment Rate to Reach 8-Year High

New data released today indicates that New Zealand’s unemployment rate is expected to rise, potentially reaching its highest level in eight years. According to Stats NZ’s quarterly Household Labour Force Survey, set to be published at 10:45 AM, economists predict the unemployment rate will increase to **5.3%** for the three months ending in September, up from **5.2%** in the June quarter. This would mark the highest unemployment rate since December **2016**, when it also stood at **5.3%**.

Key insights from the upcoming survey will include not just unemployment figures, but also employment rates, participation rates, and levels of underemployment. Doug Steel, a senior economist at BNZ, expressed expectations for a “soft labour market,” reflecting earlier economic weaknesses. However, he noted potential signs of stabilization, stating, “The labour market tends to lag the economic cycle.”

Shifting Dynamics in Employment

Steel indicated that employment and demand for labour appear to be gradually improving, albeit from a low base. He observed that the growth in labour supply is currently slow, suggesting that market dynamics may be shifting.

Michael Gordon, a senior economist at Westpac, pointed out that declining youth participation in the labour market could distort the unemployment figures. The participation rate, which measures those actively engaged in working or seeking work, has sharply decreased over the past year as many young people have opted to return to their studies. Gordon noted that youth employment remains a significant weakness in the labour market, implying that continued declines in youth participation are likely.

He explained, “With jobs growth being insufficient to absorb the new entrants into the workforce, that implies a rise in the unemployment rate and/or a fall in participation.” His forecast anticipates a slight increase in the unemployment rate to **5.3%**, alongside a drop in the participation rate from **70.5%** to **70.4%**.

Wage Growth Under Pressure

The ongoing slack in the labour market is expected to exert downward pressure on wages. Miles Workman, senior economist at ANZ, stated that with negotiating power currently favoring employers, annual wage growth is likely to decelerate. He projected that wage inflation, as measured by the private sector Labour Cost Index, would decrease from **2.3%** to **2.2%**. Additionally, growth in private sector average hourly earnings is expected to slow from **4.6%** to **4.3%**.

Workman noted that while hours paid and worked have contracted more sharply than employment in recent quarters, firms have been retaining staff despite muted demand for goods and services. He cautioned that if economic recovery takes longer than anticipated, businesses may lack the financial capacity to continue holding onto their workforce.

The Reserve Bank of New Zealand (RBNZ) has attempted to mitigate this risk with a dovish pivot in August and a significant cut to the Official Cash Rate in October. Nonetheless, Workman emphasized that prolonged economic uncertainty means that the situation remains precarious.

In contrast, ASB has adopted a more optimistic outlook, predicting that the unemployment rate will hold steady at **5.2%**. Senior economist Mark Smith remarked, “The worst is behind us, but we don’t expect to see a meaningful lift in employment until **2026**.” He pointed out that heightened competition for jobs will likely keep wage increases in check, as employees are more focused on job security than securing significant wage hikes.

As the data unfolds, these insights will provide a clearer picture of New Zealand’s labour market and its implications for economic recovery in the months ahead.