Unemployment climbs to 5.6% even as households turn slightly more optimistic
New Zealand's unemployment rate sits at an 11-year high of 5.6% even as household sentiment ticked upward, according to the latest Westpac-McDermott Miller Employment Confidence Survey.
Confidence up, but from a low base
The Employment Confidence Index rose 3.2 points to 86.3, recovering only a fraction of the 12.5-point fall recorded in June.
Westpac senior economist Michael Gordon noted the rise was unusual in its drivers: current job opportunities remained weak and largely unchanged, while the improvement instead came from households feeling more confident about the 12 months ahead.
"Somewhat unusually for this survey, the quarterly movement wasn't led by perceptions of current job opportunities, which remained at very weak levels," Gordon said.
A net 60% of respondents still described jobs as hard to find, statistically flat on the previous quarter and the weakest reading since the mid-2010s.
Gordon said this figure had been improving before the Middle East conflict but has since stalled, with recent readings broadly consistent with the current unemployment rate rather than pointing to further upside risk.
Earnings growth stays subdued, job security firms slightly
Households reported only modest gains on pay: a net 7% said their earnings had risen over the past year, up from 3% in June, while a net 12.5% expect a lift over the coming year.
Gordon suggested the weak outlook reflects workers' lack of confidence that they can secure pay rises that keep pace with the cost of living, particularly with fuel prices rising again.
Perceptions of personal job security improved to a net -6%, up from a post-COVID low of -10% in June, with the largest gains among middle- and high-income earners. Regionally, confidence rose in eight of eleven regions, led by a 16.4-point jump in Northland, while Taranaki/Manawatu-Whanganui fell sharply on weaker earnings and security expectations.
That headline unemployment figure looks more alarming than the underlying mortgage book suggests — Cotality has noted the rise has been driven by a growing labour force rather than job losses, which is why non-performing loans and mortgagee sales have stayed near record lows despite the jobless rate climbing.
Looking ahead, Westpac expects the current 5.6% jobless rate to mark the peak for this cycle, with a gradual decline forecast from the second half of the year as GDP growth builds momentum.
What weak jobs data means for lending
For advisers, the combination of rising unemployment and only tentative confidence gains is worth factoring into serviceability assessments, particularly for clients in sectors or regions where job security remains fragile despite the broader improvement in sentiment.
That fragility sits alongside a separate inflation-driven rate story — BNZ has flagged the same weak labour market backdrop even as it now expects the RBNZ to raise the official cash rate twice more this year on inflation grounds, a combination that could squeeze borrowing capacity from both directions at once.
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