September quarter saw the first increase in working hours in almost two years, hinting a job market recovery may be beginning

The job market remained miserably weak in the September quarter but an uptick in the number of hours worked, after almost two years of consistent decline, could be a hopeful signal in the otherwise gloomy data. 

Economists’ working theory has been that employers are choosing to hold onto their staff wherever possible and manage costs by reducing their hours. 

This strategy would support businesses to scale back up quickly when interest rates inevitably fell and stronger demand for their products returned.

It is one of several factors that has held headline unemployment relatively low, despite the recession being similar to the Global Financial Crisis — at least on a per capita basis.

Participation in the labour force has declined as people opt out of looking for work and the underutilisation rate, those without a job or wanting more hours, has risen near its lockdown high-point of 13.1%.

Even with these mitigating factors there are 160,000 people looking for work and almost 15% had been searching for over a year. Wage growth is barely matching inflation, depending on which measure you look at. The job market is weak. 

But here’s the green shoots: New Zealanders’ worked another 2700 hours in the average week in the September quarter, up almost 1% on a seasonally adjusted basis.

That could mean firms are starting to call up some of those part-time workers to do more hours in response to, or in anticipation of, increased demand. 

Hours worked have been falling for six consecutive quarters and are down 3.5% over the two years ended June. September showed the first increase since 2023.

Miles Workman, an economist at ANZ, said paid hours also rose 1.3% over the quarter, following five consecutive falls.

“These indicators are some of the first places you’d expect to see signs of recovery in labour demand: firms have been clinging on to workers in the face of weak demand in expectation of a recovery, and these data tentatively suggest that the recovery has started,” he said. 

It may be that green shoots, first promised a year ago, may finally be emerging.

Start the slow grind

Bevan Graham, an economist at Salt Funds, said the increased hours were a sign the labour market could be starting to turn the corner.

“That supports our view that this result will mark the cyclical high in the unemployment rate but it will be a slow grind lower, in much the same way that the broader recovery in activity will be a slow grind higher,” he wrote.

Nick Brunsdon, an economist at Infometrics, said employment appeared to have reached the bottom of its cycle with the decline halted in September. 

This reinforced other data such as the Ministry of Business, Innovation and Employment’s job advertisement index and Statistics NZ’s monthly employment indicators, both of which show two or three months of improvement. 

“A quarterly rise in hours worked also adds to the expectation that the labour market will improve – slowly – from here, with a lift in hours worked and paid,” he said. 

But Westpac economist Michael Gordon was less optimistic, warning the hours worked measure can be volatile and isn’t a great indicator of gross domestic product. 

The number of people employed did not increase during September, which suggests the economy isn't adding or losing jobs. The increase in unemployment was due to an increase in the working age population. 

Workman estimated the jobless rate could be about 4.3% in an economy running at full employment. Most economists expect the Reserve Bank to cut interest rates further. 

Going for growth, with the highest unemployment since 1994

Political groups largely viewed the data release as negative. The Council of Trade Unions (CTU) said, at 160,000, the total number of unemployed was the highest since 1994, another post-recession period. 

CTU President Sandra Grey said the Government was “dangerously out of touch” with conditions in the labour market and had failed to fix the economy.

“Workers and their families are doing it tough. Poverty and homelessness are rising. Many workers are taking up multiple jobs just to make ends meet. We need a new approach,” she said.

The Taxpayers’ Union had an idea for a new approach. It said rising unemployment proved the Government needed to adopt its full capital expensing tax policy. 

“More New Zealanders out of work is not a sign of a healthy economy, especially when combined with last month's GDP contraction. Minister Willis cannot simply talk about growth. If she wants more jobs and higher wages, she needs to back New Zealanders who create them,” a spokesperson said. 

Finance Minister Nicola Willis said the Government already had work underway to rebuild the economy and deliver more job opportunities.

“Our government is determined that New Zealanders who are seeking work can find it. That‘s why we’re so focused on strengthening the foundations from which local businesses can grow and create new jobs,” she said.

“We’ve delivered the Investment Boost tax incentive for businesses, accelerated $7 billion of major public infrastructure projects pre-Christmas, fast-tracked consents for job-rich privately funded projects, opened new markets for our exporters, welcomed in new investment from around the world, reduced red tape for businesses and championed growth policies in sectors from agriculture through to our space industry and the film sector”.