Westpac and ASB expect further softening ahead of 5 August data.
New Zealand's labour market is set to show further signs of strain when June quarter figures land on 5 August, with bank economists expecting unemployment to climb again as hiring continues to lag population growth.
Forecasts point to a further uptick
Westpac expects the unemployment rate to rise to 5.4%, up from 5.3% in the March quarter, while ASB is picking a steeper lift to 5.5%. Both banks flagged the same underlying dynamic: labour supply continuing to outpace demand.
Westpac senior economist Michael Gordon said the jobs market has "held its ground through the Middle East conflict, but it hasn't gathered the momentum that we would have otherwise hoped to see."
ASB economist Wesley Tanuvasa struck a similarly cautious tone, forecasting labour market data which he expects to "remain soft" despite tentative signs that a pre-conflict recovery was beginning to flow through into employment.
The two banks differ slightly on the pace of hiring: Westpac expects employment to have risen just 0.1% over the quarter, while ASB is forecasting a stronger 0.2% gain, lifting annual employment growth to 1.0% — its strongest pace since March 2024.
Even so, both banks note that labour force growth is likely to outstrip employment growth over the quarter — 0.3% against Westpac's 0.1% forecast, and 0.4% against ASB's 0.2% — keeping upward pressure on the jobless rate regardless of which forecast proves closer to the mark.
Wage growth staying subdued
Neither bank expects the softer jobs market to translate into stronger wage pressure. Westpac has pencilled in a 0.6% quarterly rise in the Labour Cost Index, keeping annual private sector wage growth just below 2%, while ASB's equivalent forecast sits at the same 2% annual pace — around a four-year low.
Tanuvasa pointed to higher default KiwiSaver contribution rates and ongoing labour market slack as factors likely to keep wage rises contained, adding this dynamic "should help calm a nervous RBNZ around the risks of a wage-price spiral."
What it means for the OCR outlook
The data lands just ahead of the Reserve Bank's 2 September policy review, though both banks expect limited influence on near-term rate decisions given labour data typically lags the wider economy. Gordon noted Westpac's forecasts are in line with what the RBNZ expected in its May Monetary Policy Statement, while Tanuvasa said ASB continues to expect the OCR to finish the year at 3.25%.
For more insights, read the Westpac and ASB reports.
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