The unemployment rate rose to 5.1% in the December 2024 quarter, in line with market expectations. Wage growth is moderating broadly as expected.
- Unemployment rate: 5.1% (prev: 4.8%, Westpac f/c: 5.0%, RBNZ f/c 5.1%)
- Employment change: -0.1% (prev: -0.6%, Westpac f/c: -0.2%, RBNZ f/c -0.3%)
- Labour costs (private sector): +0.6% (prev: +0.6%, Westpac f/c: +0.6%, RBNZ f/c +0.5%)
- Average hourly earnings (private sector, ordinary time): +1.3% (prev: +1.2%)
New Zealand’s labour market continued its steady softening at the end of last year. The unemployment rate rose from 4.8% to 5.1% in the December quarter, the highest level since 2016 (other than a brief spike after the 2020 Covid lockdown). Wage growth in turn has continued to moderate, though it remains higher than pre-Covid levels.
The results were broadly in line with market expectations, and with the Reserve Bank’s forecasts in its November Monetary Policy Statement. Some of the details were marginally stronger than the RBNZ had assumed, none of this is likely to be persuasive; the RBNZ has already stated that the base case for its policy review later this month will be a 50bp OCR cut, unless there was conclusive evidence otherwise.
The number of people employed fell by 0.1% for the quarter. This was actually slightly better than we expected based on the Monthly Employment Indicator and was backed by the various employment measures in the Quarterly Employment Survey (QES) which were at or close to flat. There were modest downward revisions in earlier quarters, however, leaving employment down 1.1%y/y – a fraction weaker than the RBNZ’s forecast.
The fall in employment was partially offset by a slight drop in the participation rate to 71.0% (from a downwardly revised 71.1% in the September quarter). As we’ve noted previously, youth participation in particular has dropped off markedly in the last year or so, having risen sharply during the period of labour shortages in 2021-22.
The rise in the unemployment rate reflects the fact that while the level of unemployment has more or less flattened out, the working-age population has continued to grow in the meantime (up 0.4% for the quarter and 1.4% over the last year). Even with the economy expected to pick up over 2025, we think it will be towards the end of this year before we see jobs growth outstripping population growth.
Turning to wages, the Labour Cost Index (LCI) rose by 0.6% for the private sector, in line with our forecast. The public sector was more subdued than in previous quarters with a 0.5% increase. (There was a 3.9% pay increase for schoolteachers in December, but as we noted, the timing of the LCI survey meant that it may not be recorded until next quarter.)
The unadjusted analytical LCI, which strips out pay increases that are related to higher productivity, rose by 0.9% for the quarter. That took the annual growth rate down from 4.9% to 4.2%, its lowest since December 2021. Fewer roles have seen pay increases over the last year, and the average size of those increases has moderated.