Labour market recovery narrows window for future rate cuts
New jobs data suggest New Zealand’s labour market is no longer deteriorating and is starting to stabilise – an important signal for mortgage advisers watching where rates go next.
ASB senior economist Mark Smith (pictured left) notes that while filled jobs were unchanged in December, historical revisions tell a more positive story. Employment in November was revised 0.2% higher, and filled jobs rose 0.2% over the December quarter, leaving employment about 1.9% below early‑2024 peaks. These revisions, Smith says, “are now pointing upwards, consistent with an improving underlying trend in hiring.”
Sector detail shows a still‑mixed but generally firmer picture.
Services – around 75% of all filled jobs – were flat in December, but up 0.3% over the quarter and just 1.1% below their March 2024 peak. Construction employment, despite being highly interest‑rate sensitive, climbed 0.7% in Q4 (though still down 3.1% year‑on‑year), which Smith describes as “encouraging”. Primary‑sector jobs fell 0.2% in December but were 2.4% higher than a year earlier and only 0.2% below January 2024 highs.
Regionally, employment remains weaker in Auckland (down 0.5% year‑on‑year) and Wellington (down 1.1%), but is particularly strong in Canterbury and Otago (both up 1.1% y/y).
Labour market past the worst of job losses
Smith argues the labour market is now moving through the early phase of the recovery that began in the second half of 2025.
“We look to be past the worse for job losses,” he said, although spare capacity – especially in under‑utilised workers – means the initial rebound in hours and headcount may be modest.
Westpac senior economist Michael Gordon (pictured right) reaches a similar conclusion. Filled jobs were flat in December after a revised 0.5% rise in November, but “the underlying trend appears to be that employment was stabilising towards the end of last year and even picking up in some sectors, though growth remains patchy.”
ASB expects the official Household Labour Force Survey to show a 0.2% rise in employment in Q4, with the unemployment rate around 5.3% – likely close to the peak for this cycle.
What this means for mortgage advisers and rates
For Kiwi mortgage advisers, the key takeaway is that a firmer labour market makes early rate cuts less likely and supports a higher‑for‑longer official cash rate (OCR) profile.
ASB expects hiring to accelerate as the expansion matures into 2026, pushing unemployment back towards a “Goldilocks” range of 4–4.5%.
With labour market slack receding and inflation hovering near the top of the 1–3% target band, ASB forecasts a 25bp OCR hike in December 2026, followed by a further 50bp of tightening in the first half of 2027.
That implies borrowers could face a period where job prospects improve but mortgage rates edge higher again – underscoring the need for advisers to stress‑test affordability, review refix and restructuring options early, and prepare clients for a more sustained peak in interest rates.
For more insights, read the Westpac and ASB reports.Stay informed with the latest housing market trends and mortgage insights — subscribe to our free daily newsletter.
