Economists see some good signs in the latest labour market data as Luxon acknowledges 'difficult & challenging period' and Labour sees the 'cost of National's economic choices'

While the unemployment rate was higher than anticipated, some economists have looked under the hood and say there are some good economic signs.

But ASB economist Wesley Tanuvasa said he was cautious about whether those good signs could continue under a "volatile global backdrop".

On Wednesday, Statistics NZ released its labour market data for the three-month period between April and June. This latest unemployment figure is the highest it has been for more than a decade, at 5.6%. Alongside this, there was a rise in underutilisation to 13.8% - this rate pretty much looks at the people who would like more work.

Tanuvasa said while much of the attention will be given to the unemployment rate, there was an improving labour demand impulse alongside a strong labour supply response.

“These are generally good economic signs. However, we are cautious as to whether these underlying factors can continue against the volatile global backdrop. We still think a meaningful improvement in the labour market is more of a 2027 story.”

BNZ head of research Stephen Toplis said there was no doubt the state of the labour market was undesirable but a singular focus on the unemployment rate “overlooks the fact that the data confirm our view that the economy is turning the corner”.

“And this [is] despite the numbers referring to a June quarter in which the economy was battered by soaring oil prices and the chaos in the Middle East.”

“Overall, the labour market is very weak. But, like elsewhere in the economy, there are signs of life which we hope will blossom as the year progresses,” Toplis said.

'Far from people losing their jobs, effectively, it appears that more people want work'

In terms of more people wanting work, Infometrics principal economist Nick Brunsdon said the latest labour market data showed some limited effect from the conflict in the Middle East, and a greater interest in work is potentially due to rising household costs.

“Far from people losing their jobs, effectively, it appears that more people want work, and want more hours, as households grapple with higher fuel costs,” Brunsdon said.

Brunsdon said more interest in work, potentially due to rising household costs, was the key driver behind labour market trends.

Annual inflation, as measured by Stats NZ’s Consumers Price Index (CPI) increased to 4.1% in the June quarter, with higher petrol prices the main contributor to the increase. Petrol was up 27.5% and accounted for almost a quarter of the 4.1% annual increase.

'The Kiwi economy is not in for an easy recovery'

Kiwibank economists Alexandra Turcu and Elliott Lowe said "the true effects of the economic downturn due to the Middle East conflict may not have fully materialised in the data yet.”

“With considerable slack left in the labour market, the Kiwi economy is not in for an easy recovery.”

Turcu and Lowe also pointed out that wages had not caught up with prices. “The lacklustre wage increases Kiwi workers are currently experiencing puts households further and further behind inflation.”

ANZ senior economist Matthew Galt said today’s data showed a “soft labour market with considerable spare capacity and a pause in the tentative improvement that had been building before oil prices surged in February”.

Galt said the figures also showed an increase in the number of people underemployed, those who work part time but want more hours, and available potential jobseekers - people who want to work but aren’t actively looking.

“The collective signal in the data is that labour demand was subdued in Q2 on the whole, which suggests that the tentative improvement in labour demand seen in the previous few quarters faded in the quarter.

“That’s not a surprise given the increase in uncertainty after fuel prices surged. Timelier data in recent months suggests this soft patch was temporary, and we expect labour demand to return to an improving path over the second half of the year.”

The Official Cash Rate

In July, the Reserve Bank (RBNZ) raised the OCR to 2.50% from 2.25% - the first time since May 2023 the RBNZ increased the OCR.

Galt said the signal from Wednesday’s data was consistent with ANZ and the RBNZ's assessment that the labour market isn’t a source of CPI inflation pressures, even though parts of the CPI basket such as fuel prices are problematic.

“Weighing up near-term inflation risks and signs of improved growth momentum against the spare capacity persisting in the economy, we remain comfortable with our OCR call for 25bp (basis point) hikes at each of the next two RBNZ meetings," said Galt.

BNZ's Toplis said the higher-than-anticipated unemployment rate was no reason to dissuade the RBNZ from continuing the interest rate tightening cycle it has embarked on, as economic momentum lifts.

Meanwhile ASB's Tanuvasa said: “We retain our view of a steady sequence of 25 basis points hikes to deliver a 3.25% year-end OCR. Indeed, the environment we forecast in is fickle, so too is the path of the OCR."

Luxon cites 'incredibly difficult and challenging period'

Speaking on Wednesday afternoon, Prime Minister Christopher Luxon said it had been an incredibly difficult and challenging period, particularly during these last three months, with the flow-on impacts of the conflict in the Middle East.

"I just want everyone to know it has been a hard time, particularly if you're wanting work in the last quarter, to find work, and I fully acknowledge that."

Luxon said there had been good momentum and growth going into the conflict, and he knew that the Government's management by keeping an eye on; "the financials and the fiscals" through the conflict was important "so that we can actually power through and get up and out of it as quickly as we can". 

Finance Minister Nicola Willis said: “Global uncertainty and an oil price shock saw employers put off intentions to hire new workers or create jobs, and that’s had a real impact on New Zealanders looking for work, and is reflective in the statistics out today.”

Willis, who is also National’s finance spokesperson, backed the government’s policies which she said boosted the economy and built business confidence.

“Because confident businesses are the ones who hire people and grow their operations – and it’s encouraging to see recent jumps in business confidence and hiring intentions," she said.

"None of this is about quick fixes. It's about giving employers the confidence to say yes to that next hire, that next expansion, that next investment. That's how you turn a tough quarter into a recovering economy."

'The cost of National's economic choices'

Opposition parties were quick to hit out at the Government.

Labour’s finance spokesperson Barbara Edmonds said: “Christopher Luxon can keep telling New Zealanders the economy is turning a corner, but if you’ve lost your job, can't find work, or worried you'll be next, you know that simply isn't true."

“Behind every unemployment statistic is a person who wants to work, a family worried about paying the bills, and a community feeling the impact. That's the real cost of National's economic choices,” Edmonds said.

Asked by reporters about the conflict in the Middle East and its impacts, Edmonds said: “Every government will eventually face some sort of economic shock. Labour had a pandemic. We also have cyclones and natural disasters that happened during our term. This is why you don’t make short-term decisions to hold back an economy when you know that growth is dropping.”

Greens co-leader Chlöe Swarbrick also blamed Luxon’s economic decisions, saying they “have produced the highest unemployment rate in over a decade.”

“Political tit for tat aside, it's time for the Prime Minister to put his hands back on the wheel of this economy and invest in our country. Clearly, cut after cut doesn't grow an economy. It breaks one."