Unemployment hits 5.1%, with largest drop in employment since GFC

Wednesday, 5 February 2025

Unemployment reached 5.1% in the final three months of last year, with the number of people counted as officially unemployed climbing by 7000 over the quarter to 156,000.

Stats NZ reported that the number of people in work dropped by 32,000 over the year, to just over 2.9 million.

“This was the largest annual fall in employment since the year to the December 2009 quarter,” Stats NZ spokesperson Deb Brunning said.

However, surprisingly high pay rises also reported by Stats NZ on Wednesday are leading to some questions over whether the Reserve Bank could reconsider the size of expected interest-rate cuts.

The unemployment rate briefly spiked to 5.2% in the September 2020 quarter but had otherwise remained below 5% for the past eight years, until today’s update.

Finance Minister Nicola Willis said the data underscored the need for strong economic management to build a growing economy.

While the numbers were largely in line with predictions and there were “some encouraging indicators, such as wages rising faster than inflation”, Kiwis were still doing it tough, she said.

“I feel for people who have lost their jobs or are finding it hard to find work. That is the human cost of a lingering effects of economic mismanagement by the previous government which drove up inflation and interest rates.”

Labour finance spokesperson Barbara Edmonds said a rise in unemployment of 33,000 over the year meant the Government should take immediate action to stabilise the jobs market and reverse public service cuts.

While the Government had promised a better economy, “all we’ve seen is an economic downturn, rising unemployment, and the sharpest recession, excluding Covid-19, in 30 years — all of which happened under National’s watch,” she said.

Stats NZ classes some people as neither in employment nor officially unemployed, for example if they are not working but also not available for work when they are surveyed.

The “underutilisation rate”, which is a broader measures of those out of work or seeking more hours, and often regarded as a better measure of slack in the labour market, rose to 12.1%, from 11.6% in the September quarter.

That was its highest level since March 2021.

Brunning said men accounted for 85% of the annual decrease in employment, reflecting “substantial falls in the male-dominated occupation groups of technicians and trades workers and machinery operators and drivers”.

However, the unemployment rate among women in the December quarter remained higher at 5.2%, versus 4.9% for males.

Despite the weakness in the jobs market, Stats NZ reported that average weekly earnings for full-time workers, including overtime, rose by 4% annually.

That was significantly ahead of the 2.2% annual inflation rate, and the 3% rise in the overall cost-of-living Stats NZ reported earlier this week, and could raise fears that the Reserve Bank may back away from larger interest rate cuts.

Average ordinary time hourly-earnings in the private sector, a measure of wage growth closely watched by ANZ, also rose 4%, reversing a downward trend that had begun in June 2023.

Council of Trade Unions economist Craig Renney said there was “surprising strength” in the wages data which could give the Reserve Bank “pause to think”.

But pay rises had not been distributed equally, with about 46% of workers receiving increases that were below the rate of inflation, he said.

Capital Economics economist Abhijit Surya said it wouldn’t read too much into the “modest upside surprise” on wages as its modelling indicated wage growth would ease over the coming quarters.

“With the labour market continuing to cool, another 50 basis point cut by the Reserve Bank later this month is all but nailed on,” he said.

ANZ had been expecting only an annual 3% increase in ordinary time hourly-earnings in the private sector, but took a similar view.

The bank said in a research note that “at face value the forecast miss may look concerning”, but chief economist Sharon Zollner played down the difference, telling The Post it was a “marginal surprise”.

“You can see from history it bounces around and we don’t read too much into it. I don’t think the Reserve Bank will be unsettled at all.

“It will look at the whole package of data and go ‘great, tick’,” she said.

The labour market figures are the last major update from Stats NZ before the Reserve Bank meets on February 19 to release its first monetary policy statement for the year and consider the size of an expected interest-rate cut.

However, the central bank’s focus is also expected to be on rapidly changing international developments in the wake of the inauguration of US president Trump and fluctuating concerns over a global trade war that could slow growth and push up inflation.

The Reserve Bank, ANZ, ASB, BNZ and Kiwibank had all forecast Stats NZ would report unemployment climbed to 5.1% in the December quarter, up from 4.8% in the previous quarter.

Westpac had tipped it would come in slightly lower, at 5%.