Cost of living: Expert says unemployment rate needs to jump to 'rebalance' economy

An economist is warning New Zealand's unemployment rate needs to jump to 'rebalance' the labour market.

But Milford Asset Management Portfolio manager Mark Riggall said it doesn't necessarily mean Kiwis will lose their jobs.

It comes after a new household survey released this week shows people are feeling more pessimistic about the current job market.

The latest Westpac McDermott Miller Employee Confidence Index is down 7.4 points in the September quarter and at its lowest since December 2020.

Riggall told AM on Thursday the data isn't just at its lowest since 2020, but also at one of the lowest levels since the survey first started in 2005.

"If you look at what's driving it, it's perceptions of job availability. So people are thinking there's less opportunities for them to go out and get a job," he said.

"If you look where that is concentrated, Auckland, Christchurch/Canterbury, that's where the confidence is at its lowest. Normally when you see confidence this low, that normally is a precursor to a rise in the unemployment rate so it's an important signal."

New Zealand's unemployment rate is currently sitting at 3.6 percent but last year it dropped 3.2 percent - the lowest it has been since 1986.

It comes as New Zealand has seen a surge in migration. Data released by Stats NZ last month shows there was a provisional net migration gain of 86,800 in the June 2023 year.

The latest numbers are just below Aotearoa's highest annual net migration gain of 91,700 in the March 2020 year.

"If we look at the Seek job data, which we also got this week, in terms of advertised jobs, those jobs job ads have been declining year on year, so down about 25-26 percent. But in the last month that actually started ticking back up again," he said.

"Seek is also reporting a record number of applicants per job that's being advertised. So what does that tell you? That tells you there are more people in the labour force that are looking for a position and that is consistent with that story about migration. So it's people from other countries coming in and competing with domestic workers for those same jobs." 

Riggall told AM co-host Ryan Bridge the key thing the Reserve Bank of New Zealand (RNZ) wants to see is a "rebalance of the labour market".

He warns this could see the unemployment rate increase but doesn't necessarily mean people will lose their jobs.

"If we step back and look at the bigger picture, we need to rebalance the labour market. We had unemployment down to 3.2 percent, it's currently 3.6 percent, but that is still way below the four-point something percent it was pre-COVID. The RBNZ are needing the employment market to rebalance because it's too tight," he said.

"How do you want to rebalance that? Do you want to rebalance that by people losing their jobs or do you want to have more people come into the labour force and cause the unemployment rate to go up without unnecessary loss of jobs and that's what we're seeing.

"So migrants are coming in, more people in the labour force, unemployment rates going up, but people aren't losing their jobs."

Watch the full interview with Mark Riggall in the video above.