New Zealand Unemployment Rate Rises to 5.6% in Q2 2024, Above Forecasts

New Zealand’s unemployment rate climbed to 5.6% in the second quarter of 2024, according to data released by Stats NZ, exceeding market expectations of 5.4% and marking the highest level in over three years.

What the latest labour market data shows

The seasonally adjusted unemployment rate rose from a revised 5.1% in the first quarter of 2024, reflecting a continued cooling in the labour market. The number of unemployed people increased by approximately 21,000 to 168,000 in the June quarter, while the labour force participation rate edged down to 71.7% from 72.1%.

Employment growth remained subdued, with total employment rising by just 0.1% quarter-on-quarter, well below the pace needed to absorb new entrants to the workforce. Underutilisation, which includes underemployed workers and those with untapped potential, also ticked up to 11.6%.

Why the unemployment rate matters for the economy and monetary policy

The weaker-than-expected labour market data adds to signs that the New Zealand economy is slowing under the weight of restrictive monetary policy. The Reserve Bank of New Zealand (RBNZ) has held the official cash rate at 5.5% since May 2023, the highest level in over a decade, as it seeks to bring inflation back to its 1-3% target band.

Economists note that the rise in unemployment is a lagging indicator, but the trend is likely to reinforce expectations of rate cuts later this year. The RBNZ’s own projections had anticipated unemployment reaching 5.6% by mid-2025, but the latest data suggests the labour market is softening faster than previously forecast.

For households, the rising unemployment rate reflects growing financial strain, with higher mortgage payments and persistent cost-of-living pressures weighing on consumer confidence. Businesses, particularly in construction and manufacturing, have been reducing staff as demand weakens.

Impact on wages and inflation

The labour market loosening is also influencing wage growth. Private sector labour cost inflation eased to 3.9% annually in the second quarter, down from 4.2% in the previous quarter. Slower wage growth could help ease domestic inflation pressures, giving the RBNZ more room to consider policy easing.

However, the central bank has remained cautious, citing persistent domestic price pressures and the need to ensure inflation is firmly anchored. Financial markets are currently pricing in a significant probability of a rate cut in the fourth quarter of 2024, with some analysts expecting a move as early as August.

Conclusion

New Zealand’s unemployment rate rising to 5.6% in Q2 2024, above expectations, underscores the challenges facing the economy as it navigates a period of slow growth and high interest rates. While the data may prompt the RBNZ to consider easing policy sooner, the central bank is likely to weigh the risks of premature cuts against the need to support a cooling labour market. For now, the outlook remains uncertain, and further deterioration in employment could be on the horizon if economic conditions do not improve.

FAQs

Q1: What was the expected unemployment rate for New Zealand in Q2 2024?
Economists had forecast the unemployment rate to come in at 5.4%, but the actual figure was higher at 5.6%.

Q2: How does the Q2 2024 unemployment rate compare to the previous quarter?
The unemployment rate rose from a revised 5.1% in Q1 2024, indicating a significant quarter-on-quarter increase.

Q3: What are the potential implications of the rising unemployment rate for interest rates?
The weaker labour market data increases the likelihood that the Reserve Bank of New Zealand may cut interest rates sooner than previously anticipated, possibly later in 2024, to support economic activity and employment.