The unemployment rate ticked up to 5.4% in the December quarter. The details were positive though, with growth in jobs and hours being outstripped by an even larger rise in participation.
- Unemployment rate: 5.4% (prev: 5.3%, Westpac: 5.3%, RBNZ: 5.3%, mkt: 5.3%)
- Employment change: +0.5% (prev: 0.0%, Westpac: +0.3%, RBNZ: +0.2%, mkt: +0.3%)
- Participation rate: 70.5% (prev: 70.3%, Westpac: 70.3%, RBNZ: 70.3%, mkt: 70.3%)
- Labour costs (private sector): +0.5% (prev: +0.4%, Westpac: +0.5%, RBNZ: +0.5%, mkt: +0.5%)
The December quarter labour market surveys showed some early signs of improvement in the jobs market, despite a further small rise in the headline unemployment rate. Wage growth measures remained unsurprisingly subdued at this stage of the cycle.
Overall, we think the results were broadly in line with the Reserve Bank’s forecasts and won’t give them much new to mull over ahead of their 18 February policy review. What that means is there is little here to hurry the RBNZ quickly towards reversing those last 75bp of OCR cuts made after August 2025. Still muted wage pressures should imply there is time to assess the strength and durability of the recovery before raising rates. We remain comfortable with our forecast of a December 2026 first rate hike.
The number of people employed rose by 0.5% for the quarter – actually more than what was suggested by the Monthly Employment Indicator, and ahead of the 0.3% rise in the working-age population. However, there was an even more significant rise in labour force participation from 70.3% to 70.5%, with the net result being an uptick in the unemployment rate. In any case, both of these ‘surprises’ are well with the margin of error for this survey, and we don’t regard them as being meaningfully different from our expectations.
Another positive indicator from the household survey was a 1% rise in hours worked for the quarter, on top of a 1.1% rise in the September quarter. We certainly wouldn’t dismiss this lightly, given that this measure has been an unusually good guide to the swings in quarterly GDP in recent times. However, there was a contrasting 0.5% fall in total hours paid in the business-oriented Quarterly Employment Survey (which had also seen a strong 1.1% rise last quarter).
Given the existing degree of slack in the labour market, wage trends unsurprisingly remained subdued. The Labour Cost Index rose by 0.4% overall for the quarter, with a 0.5% rise in the private sector and a more modest 0.3% rise in the public sector. On an annual basis the LCI rose by 2.0%, its slowest pace since March 2021.
The unadjusted analytical LCI, which includes pay increases that are related to higher productivity, rose by 0.8% for the quarter, slightly more than the 0.7% rise in the September quarter. The annual growth rate slowed from 3.4% to 3.3%, also the lowest reading since March 2021. The distribution of pay rates continues to drift towards annual increases in the 2-3% range, and away from the larger increases that were more common in previous years.
