New Zealand’s Q4 jobs data showed improving labour momentum beneath a higher jobless rate, leaving policy expectations largely unchanged.

  • Unemployment rate hit a decade high at: 5.4% (prior 5.3%; exp 5.3%; RBNZ forecast 5.3%)

  • Employment change: +0.5% q/q (prior 0.0%; exp +0.3%; RBNZ forecast +0.2%)

  • Participation rate: 70.5% (prior 70.3%; exp 70.3%; RBNZ forecast 70.3%)

  • Private-sector labour costs: +0.5% q/q (prior +0.4%; exp +0.5%)

Summary:

  • Unemployment edged higher despite solid job gains in Q4

  • Employment growth outpaced population growth, lifted by participation

  • Hours worked rose again, pointing to improving activity signals

  • Wage growth remained subdued amid ongoing labour market slack

  • Data broadly aligns with central bank forecasts, policy outlook unchanged

New Zealand’s labour market showed early signs of stabilisation in the December quarter, even as the headline unemployment rate ticked higher. The jobless rate rose to 5.4%, up from 5.3% previously, coming in slightly above consensus and the central bank’s own projections, which had both pointed to an unchanged outcome.

Beneath the surface, however, the details were more encouraging. Employment rose by 0.5% over the quarter, stronger than both market expectations and the central bank’s forecast, and comfortably above the 0.3% increase in the working-age population. The increase in jobs was accompanied by a notable rise in labour force participation to 70.5% from 70.3%, exceeding expectations and explaining the modest lift in unemployment. In effect, stronger labour supply more than offset employment gains.

Additional support for an improving labour backdrop came from the household survey’s measure of hours worked, which rose 1.0% in Q4 following a 1.1% increase in the September quarter. This metric has proven to be a reliable leading indicator for swings in quarterly GDP in recent years, suggesting momentum in activity may be firming. That said, the business-focused Quarterly Employment Survey painted a softer picture, showing a 0.5% decline in total paid hours after a strong prior quarter, highlighting some lingering cross-currents in the data.

Wage pressures remained contained, reflecting the existing degree of slack in the labour market. The Labour Cost Index rose 0.5% in the private sector, in line with expectations, while overall quarterly growth remained modest. On an annual basis, labour cost growth slowed to 2.0%, the weakest pace since early 2021. Broader measures of wage growth that account for productivity-linked pay increases also softened, with annual growth easing to the lowest level in nearly four years.

Overall, the results were broadly consistent with forecasts from the Reserve Bank of New Zealand and are unlikely to materially alter the policy outlook ahead of the February 18 meeting. Muted wage pressures and only gradual labour market improvement suggest policymakers have time to assess the durability of the recovery. On that basis, expectations for a first OCR hike remain centred on late 2026 rather than an earlier move.

This article was written by Eamonn Sheridan at investinglive.com.

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