Unemployment rate nears a turning point

Last Wednesday’s labour market statistics release from Stats NZ showed the unemployment rate remained at 5.1%, below market expectations of 5.2-5.3%. We are nearing the trough in the labour market, which is likely to see the unemployment rate peak during the current June 2025 quarter. Although the headline figure remained the same there were still interesting underlying trends beneath this.

In this article we will delve into some detailed trends occurring across the labour market, looking at changes across industries, employment types, and age groups, as well as examining likely future trends for the labour market.

Monthly employment indicators typically give us the best picture of the labour market at an industry level. Over the past year we have seen few industries growing, with mining (3.7%), utilities (2.7%), arts and recreation (1.7%), and health care (1.6%) the largest risers (see Chart 1).

The growth in utilities (electricity, gas, water and waste services) is probably being driven by the increasing investment in the energy sector, with the gentailers investing heavily into electricity generation. The increase in local government spending on water and waste services is another likely driver.

Deep declines across information media and telecommunications (-7.8%), administration (-6.3%), and construction (-6.2%) outweigh the few industries that have seen an uptick in job numbers. Media job cuts are a likely source of the significant declines across information media and telecommunications.

The consolidation of the construction workforce is due to lower volumes of work occurring following falling consent levels. Our recent article delves deeper into the drivers of this consolidation.

One of the most notable trends in Wednesday’s labour market release was that, despite the level of employment remaining largely flat compared to the previous quarter, trends between full-time and part-time work were diverging. Individuals are classified as part-time if they usually work less than 30 hours per week.

As the unemployment rate has increased from 3.4% in March 2023, part-time employment has increased from a year ago for nine consecutive quarters, while full-time employment growth has slowed for eight consecutive quarters, turning negative for the most recent four quarters (see Chart 2).

The number of full-time workers is now 1.9% lower than in March 2024, whereas the number of part-time workers is 4.2% higher over the same period.

Data is not available on the split of full-time and part-time workers by industry in the Household Labour Force Survey (HLFS), so it is difficult to pick out the industry trends driving the shift. The shift could be a function of full-time employees finding themselves redundant in a tough labour market and having to accept part-time work due to a lack of better opportunities.

We have been highlighting the pain younger age groups have suffered through this labour market downturn in our news releases on the monthly employment indicators over recent months.

Before delving into what the HLFS results from Wednesday showed us, let’s look at how the working age populations for each age group are structured.

Younger age groups tend to have higher levels of people not in the labour force due to participation in education or training. At the other end of the age scale, the high levels of people not in the labour force is predominantly due to retirement (see Chart 3).

Chart 3 helps contextualise the following unemployment rates by age group in Chart 4. Unemployment rates by age can be volatile on a quarter-to-quarter basis, but by looking at the change since the headline rate started to pick up in the first half of 2023 should paint a clearer picture.

Since the low point of the unemployment rate in March 2023, the largest shifts in the unemployment rate by age group have been for 15-19yos (+7 percentage points), 20-24yos (+4.9 percentage points), and 25-29yos (+1.8 percentage points).

We and other forecasters have been picking mid-2025 as the low point for the labour market for some time. In other words, the unemployment rate might currently be peaking in real time, as we are in what is forecast to be the quarter where the rate peaks for this cycle.

Although the labour market seems extremely difficult for many, taking a step back and looking at current conditions in the context of history shows us that the unemployment rate has remained at much lower rates than during similar economic downturns, showing the modern economy’s relative resilience (see Chart 5).

It remains difficult for businesses to employ and retain staff while household budgets are stretched, which is demonstrated by overdue home loan payments reaching an eight-year high. But, there are pockets of significant improvement in economic conditions that should support some industries, such as the continuing dairy price rally. This year alone, prices for butter (+20%), cheddar (+19%), and whole milk powder (+14%) are significantly higher.

We will be waiting to see a material pick up in job ad numbers to signal a significant upward shift in employment numbers. However, we also caution that the labour market’s improvement from its turning point could be more muted than previously hoped, given the uncertainty emanating from the international trade war.