More than 32,000 New Zealanders lost their jobs last year as the Reserve Bank (RBNZ) crushed economic activity and forced runaway inflation back into its target band.
The unemployment rate hit 5.1% in the final quarter of 2024, its highest level since the covid lockdowns in 2020 and a period of migration-fueled economic growth in 2016. There are now 156,000 people looking for work, a 27% increase from a year ago and up 5% during the quarter.
A Stats NZ spokesperson said the annual drop in employment was the largest since 2009, when the Global Financial Crisis caused an international recession and job losses.
The weakness in the labour market has been driven by the RBNZ tightening monetary policy to reduce economic activity and bring down inflation. Unemployment hit a record low of 3.2% during 2022 as firms hired additional staff and raised prices to meet consumer demand.
High interest rates have reversed that trend, with households cutting back on spending to meet mortgage repayments, stabilising prices and forcing firms to cut staff.
While the headline unemployment rate has been rising, it has been moderated by workers leaving the labour force. The rate is calculated as a percentage of those available for work, not the overall working-age population.
The labour force participation rate dropped to 71% in December, down from a record high of 72.4% in 2023, while the employment rate fell to 67.4%, down from a peak of 69.8%.
Michael Gordon, a senior economist at Westpac NZ, said the fall in participation has absorbed much of the softness in the job market over the past year.
“Much of the current cycle in employment has been driven by young people, who were drawn into the workforce in 2021 and 2022 when the labour market was tight and migrant workers weren’t available. As those conditions have reversed, many of them are ending up back at school rather than continuing to look for work,” he said in a note.
Another broader measure of labour market strength is the underutilisation rate, which measures the proportion of the labour force that either has no job or not enough hours. It fell to a record low of 9.1% in 2022 but has risen to 12.1% as of December 2024.
Weakness in the job market has translated into slower wage growth. The labour cost index (LCI) showed worker pay increased by 3.3% in 2024, down from 4.3% the year prior, while average hourly earnings rose by 4.2% to $42.57 — compared to a 6.9% increase in 2023.
In a note prior to the release, Gordon said slower wage growth was “not exactly something to celebrate but it’s an unfortunately necessary step in breaking the cycle of domestically-generated inflation”.
And, in comments made shortly after the release, ASB senior economist Mark Smith said the labour market is expected to continue to soften given a subdued outlook for economic activity and likely cost cutting by firms struggling to rebuild "battered profitability".
"We do not expect to see discernible signs of improvement in hiring until well into 2025. A modest pick-up in hiring is then expected towards the end of this year, but we envisage that firms will carefully manage employee headcount given the uncertain and volatile outlook," he said.
"...The RBNZ will be wary of the wider economic, social, and labour market costs from keeping overly restrictive OCR [Official Cash Rate] settings for longer than is necessary. A front loaded pace of policy easing remains appropriate for now, with another 50bp OCR cut expected in February (to 3.75%). With the OCR moving much closer to neutral settings (likely to be in a 3 to 3.5% zone), the RBNZ will then slow the pace of adjustment, with the OCR hitting 3.25% by mid-year. The OCR outlook for 2025 is highly uncertain, with both upside and downside risks to the labour market and economy in general," Smith said.
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