Unemployment fell in the first quarter of the year, new Stats NZ figures show.

“The unemployment rate was 5.3% in the March 2026 quarter, compared with 5.4% in the December 2025 quarter,” labour market spokeswoman Abby Johnston said.

There were 163,000 unemployed people in the March 2026 quarter, compared with 165,000 in the December 2025 quarter, as measured by the Household Labour Force Survey.

Economists had expected the topline number to remain steady at 5.4% or to rise slightly to 5.5%.

“The fall in unemployment stemmed from the unusual combination of a rise in employment along with a fall in labour force participation,” said Westpac senior economist Michael Gordon.

“We felt that the jump in the participation rate in the previous quarter was overstated, having been concentrated among young people during the school holidays, and would unwind this time.”

“That did happen to some degree, but was balanced out by stronger employment among older groups than we expected.”

The underutilisation rate remained the same at 12.9%. There were 406,000 underutilised people in the March 2026 quarter.

Underutilisation is a broader measure of untapped labour market capacity than unemployment. It includes unemployed people, the potential labour force, and people who are underemployed.

The Labour Cost Index (LCI) showed all salary and wage rates (including overtime) increased 2% in the year ended March 2026, while the unadjusted LCI increased 3.1%.

Private sector wages increased 2% over the year. Public sector wages increased 1.7% over the year.

Earlier

There was unanimous agreement among economists that the full impact of the oil shock is yet to be felt in the labour market.

The first quarter data captures just one month of post-war economic activity.

“Higher-frequency indicators have pointed to a modest lift in jobs in recent months, though not outpacing the growth in the working-age population,” Westpac senior economist Michael Gordon said in his preview last week.

“The fast-moving developments in the Middle East mean that the labour market surveys will already be somewhat dated on their release.”

There had been a steadying in the jobs market over the March quarter, he said.

“There’s a growing range of evidence that the economy was starting to find its footing again in the early part of this year, at least up until the Iran conflict.

“But with the labour market tending to lag the broader economic cycle, we should expect jobs growth and wage demands to remain muted at this stage.”

ASB’s Wesley Tanuvasa noted the Middle East conflict presented challenges to the labour market outlook.

“We do not envisage a labour market recovery unfolding until 2027 and cite heightened stagflationary risks over 2026 given higher near-term unemployment and higher near-term inflation in our projections.”

Despite the war and oil shock, there was scope for economic growth this year, BNZ head of research Toplis said.

Economic growth has struggled for the best part of the past two years. The oil price shock is occurring just as businesses were starting to find their feet.

“Headline inflation is already above the RBNZ’s 1-3% target band and expected to go much higher,” he said.

“Nonetheless, while any current forecast has a wide error band around it, we remain relatively confident that the New Zealand economy will still eke out some growth this year.”

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.