Recovery signs are real, but borrowers face a contested OCR outlook heading into July
New Zealand's labour market posted its second gain in three months in May, offering tentative relief for borrowers and mortgage brokers watching employment trends for signs of a durable recovery. But with major banks split on whether the Reserve Bank will hike rates as soon as 8 July, the data lands at a moment of genuine uncertainty for clients weighing fix-or-float decisions and assessing their borrowing capacity.
Filled jobs rose 0.3% in May to 2.35 million, with annual growth firming to 0.6% — the fastest pace in more than two years, according to Stats NZ data.
ASB economist Wesley Tanuvasa noted the result was tempered by persistent downward revisions, with April's previously reported gain revised to a fall.
"It is frustrating that yet another delay to a burgeoning NZ recovery looks imminent," Tanuvasa wrote in ASB's Monthly Employment Indicators note.
A market bumping along the bottom
Westpac chief economist Kelly Eckhold offered a similarly cautious reading of the data.
"We're basically just bumping along the bottom of the labour market. It could have been worse," Eckhold told RNZ.
He expects unemployment to remain around 5.4% in the next update before easing gradually towards the end of the year — but only because employment growth is not yet strong enough to outweigh the natural increase in the working age population.
The headline gain masks significant sectoral divergence. Services drove the bulk of the improvement, with healthcare and education hiring up 1.3% month-on-month, keeping government-funded services jobs firm. Goods production logged its fifth consecutive month of small gains, though construction weakness remains a drag. Youth hiring remains a pressure point too, with jobs held by those under 30 down 1.4% annually, though the 20–24 age group returned to positive annual growth for the first time since May 2023.
Canterbury stands out regionally with annual jobs growth of 2.4%, while Wellington continues to lag at 0.2% below year-ago levels — a split consistent with the uneven recovery now well established across the country.
What the rate divide means for borrowers
The more pressing concern for brokers is what the employment data means for the OCR — and here, the major banks are not aligned. ANZ and BNZ are calling a 25-basis-point hike at the 8 July Monetary Policy Review, while Westpac, ASB and Kiwibank are in the hold camp. All five banks agree the OCR is heading higher — the debate is one of timing, not direction — and for clients on floating rates or short-term fixes, that window is narrowing.
ASB's position on the labour market is that the economic recovery has been delayed rather than upended by the Middle East shock.
Infometrics principal consultant Rob Heyes struck a similar note, telling RNZ he wanted "to see a few more months of positive job numbers before I conclude we have seen the worst."
Eckhold added that forecasts from a couple of months ago had pointed to a potentially larger labour market impact from the Middle East conflict than has actually materialised — the outcome, while soft, is better than the worst-case scenario that had been on the table.
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