The unemployment rate lifts to 3.9% from 3.6% while broader measures also weaken

The unemployment rate rose to 3.9% from 3.6% in the September quarter as more people sought jobs than were available in the slowing New Zealand economy. 

The underutilisation rate, which includes people who have a job but would like to work more hours, rose from 9.9% to 10.4%.

Victoria Treliving, a senior manager at Statistics NZ, said the number of people wanting more work had increased by 7,000 people, while those without any work at all increased by 8,000.  

“Increases in unemployment and underutilisation over the year indicate increasing spare capacity in the labour market following competitive labour market conditions in 2021 and 2022,” she said. 

Unemployment was at a record low 3.2% this time last year, after fiscal and monetary stimulus boosted consumer demand while pandemic response limited the labour supply.

The rate has been edging higher for the past 18-months as the Reserve Bank has lifted interest rates in an attempt to cool the economy and bring inflation to heel. 

In August, RBNZ forecast the unemployment rate would reach 3.8% this quarter and retail banks recent predictions ranged between 3.7% and 3.9%. 

Statistics NZ data, released on Wednesday morning, said there were 118,000 people available for work in September that were unable to find a job — up from 110,000 in the prior quarter. 

Businesses that struggled with critical worker shortages during the pandemic have been playing catch up as employees have become available, but this trend may have run its course. 

Data collected by the Ministry of Business, Innovation, and Employment, showed the number of job vacancies advertised online declined about 8% during the quarter and was down 25% year-on-year.

NZIER's recent Quarterly Survey of Business Opinion suggested there were more skilled and unskilled workers available than almost any other time in the past three years.

The proportion of respondents who thought labour shortages were a major constraint on production dropped to 18%, also near a three-year low. 

Firms have begun to feel cautious about making new hires, right as a wave of new workers arrive in the country ready to take jobs. 

According to Statistics NZ, the working age population increased by 0.6% during the September quarter and was up 2.6% on the year prior — largely due to migration. Statistics NZ says the country's population grew by 105,900 people in the year to June, with Auckland's population up 47,000.

Craig Ebert, an economist at BNZ, said the unemployment rate would continue to trend upward as slowing employment growth struggled to “mop up” the boosted labour supply.

But it isn’t only immigration beefing up the workforce. The high cost of living, improved wages, and attainability of jobs has encouraged more people to seek out work. 

This may be because they are now able to get a flexible job that suits their schedule and skillset, or simply because their household will struggle to pay the bills without it. 

Labour force participation fell from a record 72.4% in the June quarter to 72% in September.

Kiwibank economists said the ongoing cost of living crisis was forcing people into the labour market and had helped to drive five consecutive quarters of participation growth. 

While the labour market has loosened, it is still tight relative to history and wage pressure remains with workers wanting to be compensated for the climbing cost of living.

Pay growth data might be more important to the Reserve Bank than the headline unemployment rate, which tends to grab the attention of news writers, Kiwibank said. 

Creating more slack in the labour market is a means to an end for the central bank, which needs wage growth to slow in order to tame domestic inflation. 

The Labour Cost Index, the measure of wage growth preferred by economists, was 4.3% in the year to the September 2023 quarter, unchanged from the June quarter.

“With falling inflation expectations and growing labour supply, both should keep pressure on further wage growth,” Kiwibank said in a note last week.

They expected a 1% quarterly rise in wages, keeping the annual rate unchanged at 4.3%. The Reserve Bank expected it to fall to 4.1%. 

“With peaked wages and our recent falls in inflation, it’s becoming more and more clear that the Reserve Bank will be on hold at their November meeting”. 

Bryan Downes, a business prices delivery manager at Stats NZ, said the increase to the labour cost index was driven by higher public sector salaries and wages. 

“This has been influenced by collective agreements for teachers, nurses, and the NZ Defence Force over the past year,” he said. 

Salary and wage rates for the public sector increased 5.4% annually, the highest rate since the series began in late 1992. The increase was 4.2% in the June quarter. 

Private sector wage cost inflation was 4.1% in the year ended September, down from 4.3% in the prior quarter.

“The number of private sector jobs experiencing some kind of pay increase in a year has been falling over the past four quarters from a series high in the December 2022 quarter,” Downes said.