Nicola Willis says unemployment better than predicted, blasts ‘glass half empty economics’

Wednesday, 6 August 2025

The overall picture the fresh jobs figures paint appears a bleak one, with a big rise in the broader underutilisation rate.

The jobs market is worsening, but the extent of the decline is being masked by more people staying in education or giving up looking for work for other reasons, fresh figures from Stats NZ show.

Official unemployment rose to 5.2% in the three months to the end of June, from 5.1% the previous quarter but below bank economists’ forecasts of a rise to 5.3%.

It is the second consecutive quarter that unemployment has come in a bit lower than expectations.

However, economists noted the explanation was a larger-than-expected decline in the proportion of Kiwis looking for work.

The official unemployment rate is based on a survey by Stats NZ. To count, people must have actively looked for work in the previous four weeks.

The so-called labour participation rate dropped more than predicted to 70.5%, from 70.7% the previous quarter.

Capital Economics economist Abhijit Surya said a 0.1% quarterly drop in people in employment revealed by the statistics was in line with the analyst consensus, but “noticeably worse than the 0.2% increase the Reserve Bank had predicted in May”.

“Overall, there’s nothing in today’s labour force release to prevent the Reserve Bank from cutting the official cash rate by 25bp at its meeting in two weeks’ time,” he said.

ANZ said the release showed labour demand “on the skids”.

Kiwibank senior economist Mary Jo Vergara also said the headline unemployment rate “masks dicier details”.

“People are leaving the labour market, and it’s keeping a lid on the unemployment rate. That in itself is a sign of a weak labour market,” she said.

But Finance Minister Nicola Willis said that “of particular note” was the Treasury had forecast, before the 2023 election, that there would now be “8000 more people unemployed than has actually turned out to be the case”.

“I think some New Zealanders, particularly in the ‘commentariat’ have got themselves into the habit of what I call ‘glass half empty economics’,” she said.

“Today, on the plain facts of the data, there is a lower unemployment rate than was being forecast by the Treasury at the Budget, than was being forecast by the banks, than was being forecast prior to the election.”

Stats NZ reported the number of people aged between 15 and 24 who were still enrolled in education increased by 18,000, or 5%, in the year to the end of June.

“The annual increase in the number of young people in education corresponded with decreases for both the youth employment rate and the labour force participation rate,” labour market spokesperson Jason Attewell said.

“Current labour market conditions could be influencing young people to enter or remain in education,” he said.

There has also been a sizeable increase in the number of workers who are having to settle for part-time work.

The 'under-utilisation rate', which is a broader measure of unemployment that also counts people who want to work more hours, rose at a much faster rate than official unemployment to 12.8%, from 12.4% the previous quarter, and is now at its highest level since 2020.

Official unemployment in Auckland now stands at 6.1%, up from 4.5% a year ago.

Council of Trade Unions economist Craig Renney said the headline unemployment rate “isn’t yet demonstrating what we can see underneath, which is a much weaker labour market than that 5.2% figure is suggesting”.

“There are 8½ million fewer hours than this time last year being worked.”

There was a mixed picture on pay. Average hourly earnings rose 1.4% from the previous quarter and 4.5% over the year to $43.47 an hour — representing the equal-highest quarterly increase since September 2023.

But there was a rare drop in public-sector hourly earnings, which fell 0.4% from the March quarter to $51.54 an hour.

Private sector hourly earnings increased by 4.6% over the year, once overtime was excluded, a larger rise than economists had expected.

ANZ had tipped only a 3.3% rise, while the Reserve Bank had expected that figure would be unchanged at 3.8%.

Despite the strength in the private-sector wages data, Renney said the data showed 51% of workers surveyed by Stats NZ received an annual pay rise of less than 2%, which is significantly less than the rate of inflation.