The figures were generally softer than RBNZ and market expectations, said ASB senior economist Mark Smith.
That means pressure on the Reserve Bank to hike the Official Cash Rate one more time is sliding away.
The New Zealand dollar and wholesale interest rates fell on the back of the data, which was seen as backing the case for the Reserve Bank to leave its official cash rate at 5.5 per cent.
Key two-year swap rates, which can have an influence on home mortgages, fell by six basis points to 5.54 per cent.
“Employment still looked to be above its maximum sustainable level, but labour market tightness is quickly receding,” said Smith.
“With the post-Covid-19 catch-up on hiring looking to have run its course, employment has largely flatlined...and undershot labour force growth.”
The unemployment rate rose to its highest level since the June 2021 quarter.
Labour cost growth has remained elevated, but it looked to be past its peak for the private sector, with the distributional figures hinting at some cooling in wage pressures, he said.
“We continue to expect more labour market slack to emerge heading into 2024. Weaker job advertising points to a slower pace of job gains ahead, notwithstanding the post-election pick-up in surveyed hiring intentions. Strong growth in the supply of labour looks set to continue. As such, we expect the NZ unemployment rate to continue to move up, and to move above 5 per cent by the end of 2024.”
This should temper wage increases and significantly dampen pressures on core inflation, he said.
“Nonetheless, the starting point for labour cost growth is high, and the RBNZ will be wary of the risk that labour cost and core inflation does not cool as quickly as it would like. OCR cuts look a long way off.”
While the topline numbers largely followed the RBNZ script, there were “a few head-scratching details”, said Kiwibank economist Mary Jo Vergara.
Employment growth was surprisingly weak, she said.
Over the quarter, employment contracted 0.2 per cent which slowed the annual pace from a brisk 4.1 per cent pace to 2.4 per cent.
“Another surprising development was the fall in the participation rate from 72.4 per cent to 72 per cent,” she said.
“That still signals strong participation in the labour market, but quite a significant easing. And that’s despite strong net inflows of work-ready migrants and a 0.6 per cent increase in the working-age population. If the participation rate instead rose, or even stayed unchanged, it’s likely the unemployment rate would have breached 4 per cent.”
In the September 2023 quarter, the seasonally adjusted working-age population increased by 31,000 people to reach 4.2 million.
Annually, the seasonally adjusted working-age population grew by 2.6 per cent in the September 2023 quarter, the highest annual rate change since the March 2017 quarter.
New Zealand recorded a historically unprecedented net migration gain of 110,000 in the year to August.
“The ship has turned,” said ANZ economist Henry Russell.
“All up, the labour market continues to move in the right direction for the RBNZ, and is unlikely to be a game changer for the November meeting, at which an unchanged OCR is universally expected.
“But there’s still a fair way to go to generate the necessary slack needed to get on top of domestic inflation.”
ANZ continues to forecast one more OCR hike in February.
