The unemployment rate rose in the December quarter but not by as much as the market had expected. 

New data from Stats NZ today shows the unemployment rate was 4 per cent in the December 2023 quarter, compared with 3.9 per cent in the previous quarter. 

The market expectation was for a rise to 4.3 per cent. 

That is likely to be interpreted by the Reserve Bank as a sign that the economy is holding up better than expected and could increase pressure to hold interest rates at current levels for longer. 

“The lift in unemployment is just taking longer to come through,” said KiwiBank economist Jarrod Kerr. “At face value, the report today reduces the chances of a near-term rate cut by the RBNZ. Thoughts of cuts in May and August will likely push out to November.  We’re sticking with our call for cuts commencing in November.” 

The unemployment rate rose 0.6 percentage points over the year, up from 3.4 per cent in the December 2022 quarter. 

“Unemployment rates have returned to 2019 levels, following recent historic lows,” Work and Wellbeing Statistics senior manager Becky Collett said. 

“Low unemployment formed part of the unique economic period from 2021 to 2022, as restricted borders limited increases to labour supply and labour demand remained high.” 

The number of unemployed people rose to 122,000 (up 3000). 

In the minutes following the release, the New Zealand dollar rallied to US60.91c from US60.79c. In interest rates, the two-year swap rate jumped to 4.93 per cent from 4.89 per cent. 

The labour cost index (LCI) salary and wage rates (including overtime) increased 4.3 per cent in the year to the December 2023 quarter. This increase was the same annual percentage change recorded by the LCI in the March, June, and September 2023 quarters. 

Average ordinary time hourly earnings, as measured in the Quarterly Employment Survey (QES), increased by 6.9 per cent over the year to reach $40.84. 

Average weekly earnings (including overtime) for fulltime equivalent employees (FTEs) in the QES also increased – up 6.1 per cent over the year to the December 2023 quarter to reach $1588. 

There is a very strong migration impact, KiwiBank’s Kerr noted. 

“The working age population rose the most ever recorded (back to 1986), and employment growth can’t keep up,” he said. 

The seasonally adjusted employment rate was 69.0 per cent, compared with 69.2 per cent last quarter. 

“It’s not just about today’s old data, that lags the economy. It’s about momentum, and the outlook for employment into 2025,” Kerr said. 

“The economy is smaller than the RBNZ had forecast in November, and employment growth is likely to stall.  The unemployment rate is forecast to break above 5 per cent this year, as employers ‘rightsize’ their businesses. It is by RBNZ design. And we’re likely to see a softening in wage pressure (and inflation).” 

For men, the unemployment rate was 3.7 per cent, compared with 3.8 per cent last quarter. For women, the unemployment rate was 4.3 per cent, compared with 4.1 per cent last quarter. 

Liam Dann is Business Editor at Large for the New Zealand Herald. He is a senior writer and columnist as well as presenting and producing videos and podcasts. He joined the Herald in 2003.