Wage growth cools as economists eye November rate cut
New Zealand’s labour market softened further in the September quarter, with unemployment rising to 5.3%, but economists say the data points to early signs of stabilisation.
Headline numbers: Soft data but encouraging signs
The unemployment rate edged up from 5.2% to 5.3% — the highest level since 2016 — while employment was flat and participation eased to 70.3%. Total hours worked, however, lifted 0.9%, offering a glimmer of improvement after seven straight quarters of declines.
Westpac NZ senior economist Michael Gordon (pictured upper left) said the results were “generally as subdued as we were expecting,” but noted one positive surprise: “an encouraging lift in hours worked.”
Gordon added that “average hours worked had fallen markedly over the last year or so, implying that employers were adjusting to the soft economy by reducing hours rather than laying off workers; the latest result suggests that this trend is reversing.”
Wage growth also eased in line with expectations, with the private-sector Labour Cost Index up 0.4% for the quarter and 2.1% over the year, the lowest annual rate since March 2021.
Kiwibank: “No fireworks” but signs of a turning point
Kiwibank economists Mary Jo Vergara and Sabrina Delgado (pictured upper right and lower left) said the latest data “lacked any big bang fireworks,” but pointed to stabilisation in key indicators.
“The unemployment rate lifted to a nine-year high of 5.3%, up from 5.2%,” they said. “Employment was flat over the quarter as well signalled by the monthly filled jobs data.”
The Kiwibank economists highlighted the rebound in hours worked, adding: “Total hours worked lifted 0.9% over the September quarter, breaking a steady seven-quarter stretch of declines. Employers had previously been slashing hours in response to soft economic demand. But this appears to be reversing.”
With wage growth easing, they said “the door remains wide open for a 25bps cut to the cash rate later this month.”
ASB: slack remains but recovery forming
ASB senior economist Mark Smith (pictured lower right) said the rise in unemployment confirms a soft patch but also signals the labour market is near its trough.
“Today’s figures confirmed signs of stabilisation despite the unemployment rate rising to 5.3% – the highest rate since late 2016,” Smith said.
He noted the number of unemployed reached 160,000, the highest since 1994, but that “chunky increases in hours worked and rising full-time employment point to strengthening employment demand.”
Private sector labour cost growth slowed to 2.1% year-on-year, a four-year low, which Smith said points to further moderation of inflation. ASB expects “the unfolding economic recovery” will see the unemployment rate gradually move toward the 4% to 4.5% ‘Goldilocks zone’ by the end of next year.
Wage growth cools, inflation pressures ease
Kiwibank said more workers are now receiving smaller pay rises, with the number of jobs seeing increases above 5% dropping from 40% in 2023 to just 11% in 2025.
“Majority are pocketing increases of between 3% and 5%,” the economists said, with the proportion receiving 2–3% wage rises increasing from 8% to 15%.
Westpac noted that “the distribution of pay increases continued to soften: 44% of roles saw no increase in the past year, the highest share since June 2021.”
What it means for mortgage advisers
For mortgage advisers, the data reinforces expectations of easier monetary policy and renewed buyer confidence as interest rate relief approaches.
- Serviceability boost: Lower wage inflation and softer growth reduce pressure on rates, improving borrower capacity.
- Market dynamics: Higher unemployment may encourage first-home buyers back into the market, while stabilising conditions could renew investor appetite.
- Credit quality focus: With participation down and job losses concentrated among younger workers, brokers should continue applying conservative income assessments.
Outlook: Rate cut likely in November
All three banks expect the RBNZ to deliver a 25bp cut to the official cash rate at the November meeting.
Westpac said the figures “offer little for markets to chew on” ahead of the Monetary Policy Statement but confirm that “the degree of spare capacity will give the RBNZ confidence inflation will moderate back towards the 2% target midpoint next year.”
Bottom line for advisers: New Zealand’s labour market is soft but stabilising. With inflation easing and wage growth cooling, the conditions are aligning for a rate cut — a window brokers can use to help clients reposition for lower mortgage costs heading into 2026.
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