By James Glynn
In the third quarter, New Zealand experienced a significant rise in its unemployment rate. This was primarily attributed to the cooling job market caused by higher interest rates. Additionally, the supply of workers increased as a result of solid immigration rates.
According to StatsNZ, the seasonally adjusted unemployment rate for the third quarter was 3.9%, marking an increase from the previous quarter’s 3.6%.
The underutilization rate also saw a climb, reaching 10.4% in the third quarter compared to 9.9% in the previous quarter.
Notably, business survey indicators of skill shortages and labor constraints had already indicated an easing in labor market conditions. Senior economist Darren Gibbs from Westpac highlighted these outcomes, stating that the recent data confirmed the anticipated changes.
As a result of these developments, the Reserve Bank of New Zealand is expected to maintain its current labor market projections, which were made in August. This suggests that a further increase in the official cash rate during the central bank’s policy meeting on November 29 is highly unlikely, according to Gibbs.
Furthermore, private sector labor costs experienced growth that fell below the RBNZ’s forecast for the quarter.
Looking ahead, the RBNZ projects that the unemployment rate will continue to rise significantly, reaching 4.4% by the end of this year.
Senior economist Mark Smith from ASB predicts that strong growth in labor supply will persist as workers return after the pandemic. Consequently, this is expected to push the unemployment rate up to approximately 5.0% by the end of 2024. Smith adds that this trend will likely moderate wage increases and alleviate pressure on core inflation.