New Zealand unemployment rate edges up to 3.9 percent in September quarter

New Zealand's unemployment rate increased to 3.9 percent in the September quarter (Q3) from 3.6 percent in the previous three months, official data shows.

Statistics NZ said on Wednesday the number of people out of work increased by 8000 to 118,000 - largely in line with projections by economists.

Underutilisation, a broad measure of spare capacity in the labour market, was also up to 10.4 percent from 9.9 percent. "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," Stats NZ work and wellbeing senior manager Victoria Treliving said.

Year-on-year, the jobless rate was up 0.7 percent. 

"With the post-COVID-19 catch-up on hiring looking to have run its course, employment has largely flatlined in Q3 and undershot labour force growth," ASB senior economist Mark Smith said.

In terms of incomes, annual wage inflation was at 4.3 percent - with average weekly earnings up 5.5 percent to $1558.

"Looking at the unadjusted LCI (labour cost index)... labour cost inflation for the private sector eased to 1.1 percent qoq, with the annual rate down to 5.7 percent in the September 2023 year," Smith said. 

"The less tight labour market looks to be capping wage pressures."

New Zealand unemployment rate edges up to 3.9 percent in September quarter
Photo credit: Stats NZ

What next?

Smith noted the unemployement rate was expected to continue rising and approach 5 percent by the end of next year.

"This should temper wage increases and significantly dampen pressures on core inflation. Nonetheless, the starting point for labour cost growth is high and the RBNZ (Reserve Bank) will be wary of the risk that labour cost and core inflation does not cool as quickly as it would like," he said.

"OCR (official cash rate) cuts look a long way off."

It comes after a report by Westpac this week said New Zealand households were set to remain squeezed with interest rates continuing to rise and inflation staying above projections. 

However, the New Zealand economy was likely not at risk of sliding into recession due to expanding net migration, the report said.