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The official unemployment rate in New Zealand has climbed to 3.9%, up from its previous 3.6% figure. Thus, marking a significant shift in the labor market. This increase was reported in the year ending September 30, primarily attributed to the impact of high interest rates on the country’s economy.
Economic Squeeze Puts Pressure on Employment
The surge in unemployment is a direct consequence of the economy feeling the pinch due to increased interest rates. The employment rate has also seen a decrease, falling from 69.8% to 69.1%, which remains relatively high but signifies a change in the labor landscape.
Underutilization Rates on the Rise
Notably, the underutilization rate, which encompasses individuals seeking more work hours, has escalated from 9.9% to 10.4%. This data indicates that more people are searching for additional employment opportunities. Victoria Treliving, a senior manager at Statistics NZ, noted that both unemployment and underutilization are on the rise, reflecting a surplus of labor resources in the market following competitive conditions in 2021 and 2022.
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New Zealand Unemployment Rate Reserve Bank’s Efforts
This shift in the job market comes after a period of economic stimulus and monetary policies aiming to boost consumer demand and limit labor supply in response to the pandemic. The Reserve Bank has been raising interest rates to control the economy and curb inflation.
Challenges for Job Seekers
Statistics NZ data released in September revealed that 118,000 people in New Zealand were actively seeking employment but unable to secure jobs, compared to 110,000 in the prior quarter. Businesses that previously struggled with worker shortages during the pandemic have now begun to hire, but job vacancies have declined by about 8% during the quarter, down 25% year-on-year.
Factors Driving Labor Market Changes
Several factors are influencing this shift in the labor market. The working-age population has increased, partially due to migration, with the country’s population growing by 105,900 people in the year to June. The cost of living, improved wages, and job opportunities are also motivating more people to seek work.
Wage Growth and Inflation
While the labor market has seen some loosening, wage pressure remains high. Pay growth is a critical concern, with the Labor Cost Index at 4.3% in the year ending September 2023, unchanged from the June quarter. The Reserve Bank’s focus on slowing wage growth is essential to managing domestic inflation.
Market Reactions
Following this data, the New Zealand dollar and wholesale interest rates dipped, reinforcing the case for the Reserve Bank to maintain its official cash rate at 5.5%. The financial markets reflected this sentiment, with the Kiwi dollar experiencing a drop before stabilizing. Two-year swap rates, impacting home mortgages, also fell by six basis points to 5.54%.
Future Outlook
The outlook for New Zealand’s labor market suggests that the unemployment rate may continue to trend upward as employment growth struggles to match the increased labor supply. The cost of living crisis is a driving force behind people entering the labor market, leading to five consecutive quarters of participation growth.
In conclusion, the shift in the labor market in New Zealand has implications for both job seekers and policymakers, particularly in managing wage growth and inflation. The Reserve Bank’s approach in the coming months will be closely monitored.
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Please note that this article serves solely for informational purposes. As such, Gold Futures it is not financial advice. We strongly advise readers to conduct thorough research and consult with financial professionals before making any investment decisions.
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