NZ Unemployment Rate Climbs Toward 5.6% in March Quarter Amid Sectoral Shifts and Labor Market Slack

The New Zealand labor market is entering a period of heightened uncertainty as Westpac economists and other institutions project a continued rise in the unemployment rate through early 2025. While the Reserve Bank of New Zealand (RBNZ) anticipates stabilization by mid-year, Westpac’s analysis suggests the jobless rate could peak at 5.6% in the March quarter—marking a significant shift from the 5.1% recorded in December 2024. This outlook underscores structural imbalances in sectors such as construction and business services, while tourism and public-sector employment provide limited counterweight.

The Numbers Tell a Story of Slackening Demand

Westpac’s analysis centers on the Monthly Employment Indicator (MEI), which reported a 0.2% rise in filled jobs for March 2025—effectively flat when accounting for seasonal revisions. This stagnation in job creation, combined with a growing working-age population, has fueled concerns about rising unemployment. The NZ Institute of Economic Research (NZIER) now forecasts the rate to hit 5.6% by March, while the RBNZ’s February Monetary Policy Statement projects a slightly lower peak of 5.2% in June, followed by a gradual decline.

Sectoral Fault Lines Define the Landscape

The divergence in sectoral performance is critical to understanding the labor market’s trajectory:
- Growing Sectors: Tourism-linked industries (transport, hospitality, retail) and public services (health, education) have absorbed much of the new job creation.
- Declining Sectors: Construction and professional services remain in a slump, reflecting weaker domestic demand and delayed infrastructure projects.

Westpac notes that job ads on platforms like SEEK rose by 4% in January 2025—the largest monthly increase since July y-o-y—suggesting employers are still cautious. Applications per job ad rose 2%, signaling heightened competition for roles.

Regional Disparities Complicate the Picture

Rural areas and the South Island are outperforming urban centers and the North Island. Strong agricultural exports and a rebound in international tourism have bolstered regional economies, while Auckland and Wellington grapple with slower growth and higher unemployment.

Wage Growth Slows, but Pressure Persists

Annual labor cost inflation slowed to 3.3% in December 2024, down from 4.3% a year earlier. While this eases pressure on the RBNZ to raise rates further, Westpac warns that broader labor market slack—reflected in an underutilization rate of 12.1%—could limit wage gains unless demand surges unexpectedly.

Investment Implications: Navigating the Slack

For investors, the labor market’s direction will influence several key areas:
1. Equity Markets: Sectors tied to tourism (e.g., airlines, hotels) and public services may outperform, while construction and business services stocks face headwinds.
2. Fixed Income: The RBNZ’s rate-cut cycle—which began in May 2023—has already pushed the OCR to 5.75%. A peak unemployment rate above 5.2% could accelerate easing, benefiting bonds.
3. Regional Exposure: Investors should favor companies with operations in rural areas or sectors insulated from domestic demand volatility.

Risks on the Horizon

• Policy Delays: The lagged impact of rate cuts on consumer and business spending could prolong labor market softness.
• External Shocks: A slowdown in China or global tourism could further weaken New Zealand’s export-dependent economy.

Conclusion: Peaking at 5.6%—A Crossroads for Policy and Markets

Westpac’s analysis paints a clear picture: New Zealand’s unemployment rate is likely to rise to 5.6% in March 2025, driven by flat job growth and demographic pressures. While the RBNZ’s more optimistic June peak of 5.2% reflects hope for stabilization, investors should prepare for prolonged slack in key sectors.

The underutilization rate of 12.1%—a broader measure of labor market strain—highlights systemic inefficiencies, suggesting the RBNZ may need to cut rates further to stimulate demand. Meanwhile, equity investors would be wise to favor tourism and public-sector-linked companies while avoiding construction-related stocks.

The next major data release—labor market statistics for March 2025 due on May 7—will test these forecasts. Until then, the path for New Zealand’s economy hinges on whether job creation can finally outpace population growth—a hurdle that, for now, appears insurmountable.

This analysis synthesizes Westpac’s employment dynamics, sectoral trends, and policy context to provide investors with actionable insights into New Zealand’s evolving labor market landscape.