Unemployment rate rises to highest level since 2020

• Unemployment rises to 5.2 percent
• Two thousand jobs lost in Q2, unemployed grew 16,000 over the past year
• Marked rise of young people staying or going back to education
• Annual wage growth slows to 2.4 percent from 2,9 percent
• Data slightly better than expected — RBNZ still likely to cut cash rate in two weeks.

Unemployment edged up to a near five-year high as businesses halted hiring, but slack in the jobs market increased and wage growth slowed further.

Stats NZ numbers showed the unemployment rate rising to 5.2 percent in the three months ended June, from 5.1 percent in the previous quarter. The data was a shade below expectations.

Finance Minister Nicola Willis admitted the unemployment rate was not satisfactory, but predicted it would come down later in the year despite uncertainty in the global economy.

Unemployment has been steadily rising as businesses either sacked staff or stopped hiring because of the weak economy, while the workforce has increased despite a slowdown in migration.

“Labour market conditions have changed considerably in the last few years. Since the June 2022 quarter, the unemployment rate has risen 1.9 percentage points ,” Stats NZ labour market spokesperson Jason Attewell said.

The lowest unemployment rate in recent years was 3.2 percent in late 2021, during the pandemic.

The level of underutilisation, including the unemployed and underemployed – a measure of slack in the jobs market – rose to 12.8 percent from 12.3 percent. It was the highest rate since late 2020.

The economy shed about 2000 jobs during the quarter and 16,000 jobs over the past 12 months.

Full-time employment increased slightly, but those in part time work decreased.

Stats NZ said there was an increase in the number of young people in education, with a fall in youth employment and in the workforce.

“Current labour market conditions could be influencing young people to enter or remain in education,” Attewell said.

The number of young people between 15 and 24 years not in education or training held steady at 12.9 percent.

The broad measure of wages showed overall growth slowing to 2.4 percent from 2.9 percent.

The data was close to Reserve Bank forecasts and is likely to support another 25 basis point cut in the official cash rate to 3 percent later this month.

May get worse before it gets better

Economists said the Stats NZ data under reported the extent of weakness in the labour market.

BNZ head of research Stephen Toplis said the headline rate looked better than it probably was because people have left the jobs market.

“The drop in participation is people who have either given up looking for a job, because it’s all too hard, or who have gone back to get further education.”

“Had it not done so the unemployment rate could have been substantially higher than was the case.”

ANZ senior economist Miles Workman said many firms looked to have been holding on to or “hoarding” staff in hope of an economic upturn.

“If the economic recovery doesn’t arrive with the same amount of gusto that firms have been expecting there is a risk that they shed some of the hoarded labour they’ve been hanging on to.

“If that were to happen we estimate the unemployment rate could rise about 0.5 percentage points higher than the Reserve Bank’s current forecast.”

In its May monetary statement the RBNZ forecast 5.2 percent as the peak of unemployment through to September, before a gradual decline.

Economists were unanimous that the latest jobs and wages numbers would not stop a 25 basis point rate cut to the official cash rate (OCR) on August 20 to 3.0 percent, but Workman noted any concerted rise in the unemployment rate would see the OCR quite heavily reduced to give the economy a shot in the arm.

Financial markets are strongly picking a cut in two weeks, but then one more cut to a low of 2.75 percent early next year.

Speaking to media after the release of the figures, Willis said they were better than forecast.

“Prior to the election, Treasury, had forecasted that at this point in time, there would be 8000 more people unemployed than has actually turned out to be the case, in these number,” she said.

“Now, that is not to say that we are satisfied with this rate of unemployment. We are concerned for every New Zealander who wants a job and can’t get one. And that is why we have worked so hard since coming to office to rebuild this economy.”

Willis said $6 billion in public infrastructure investment between now and Christmas would see “real people and real jobs behind real spades”.

“We’ve also ensured that the fast-track regime will allow more private sector projects to start between now and the end of the year.”

She pointed to an above-inflation rise in private sector hourly earnings as a positive.

But with the effects of the latest hike in US President Donald Trump’s tariffs yet to be felt, Willis said it was “too soon to say” what effect that would have, but expected unemployment to come down anyway.

“We have a $10 billion deficit this year, which we are forecasting will increase next year. That’s because we believe it is not the right time to stop spending on health, on education, on the police.

“At the same time, we have set out a four-year plan to get the books back in balance because every New Zealander knows, you can’t borrow forever.”

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