Inside Economics: What the Reserve Bank will look for in today’s job market data, plus who pays the cost of Trump’s tariffs

Today's release includes a complex mix of new labour market data. Photo / Rawpixel

Welcome to Inside Economics. Every week, I take a deeper dive into some of the more left-field economic news you may have missed. To sign up for my weekly newsletter, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.

The magic number

We’ll get a new Official Unemployment Rate today at 10.45am. Economists think it will be 5.3% – up from 5.1%.

But it might be 5.2%, it might be 5.4%. Whether the rate lands better or worse than expected will grab headlines, but won’t necessarily mean much to the thousands of workers joining the dole queue and struggling to find work.

It won’t necessarily be key to the Reserve Bank’s thinking either, as it weighs the data against plans to cut the Official Cash Rate further.

The Reserve Bank (RBNZ) team is going to want to look “under the hood”, so to speak, at all the underlying data in the Stats NZ Labour Market Release.

The topline unemployment rate is a good macroeconomic barometer. It is collected via the Household Labour Force Survey, a series that runs back to 1986.

But it is very specific, counting only those looking for work who have worked no hours at all.

If we want to understand how the economy is performing, we need to recognise that there is a lot more going on in the labour market than that.

So what should we be looking for at 10.45am, if not the topline unemployment number?

And what might shift the dial for the RBNZ?

Participation rate

One of the big movers this year has been the level of participation in the labour market.

Basically, this measures the number of people who have dropped out of the job hunt.

Sometimes, people just give up and live on savings or from their partner’s income. Mostly, though, the falling participation rate reflects rising numbers of people (particularly young people) going back into education or further training.

So in many ways, it’s not a bad thing. It does, however, flatter the topline unemployment rate, so it’s an important number when assessing the overall state of the economy and labour market.

The rate has been falling this year as jobs have dried up. Westpac is expecting it will fall to 71.2%, from 71.5% in March, down from an all-time high of 72.4% a year ago.

Employment rate

People stop looking for work when the jobs aren’t there, so just as important as the unemployment rate is the employment rate.

The employment rate, as you’d expect, measures the number of people (over 15) in paid employment.

In the March quarter, that figure was 67.2% (or 2,914,000 people). It has likely fallen again in the second quarter.

Underemployment

It’s a feature of the Household Labour Force survey that the definition of unemployment is very strict. As mentioned above, if you worked any hours at all, you are not classified as unemployed.

But if you worked some hours and wanted to work more, then you are classified as underemployed.

Underutilisation

If we want to really get a sense of how bad the market is then we can add the unemployment rate and underemployment rate together to get the underutilisation rate.

This rate also includes those who want a job and are available to work, but are not currently looking for a job (available potential jobseeker) and those who are unavailable to start work but are looking for a job as they will be able to start work within the next month (unavailable jobseeker).

So this is probably the broadest measure of overall slack in the job market and might best reflect how sick or healthy it all really is.

The underutilisation rate was 12.3% in the March quarter.

Wage growth

This might well be the most important set of data for the Reserve Bank – and for those hoping interest rates will continue to fall.

Today, we’ll get a read on wages from both the Labour Cost Index (LCI) and the Quarterly Employment Survey.

Unadjusted, the LCI tends to increase at a higher rate than wage-cost inflation since it includes market costs as well as factors such as employees’ individual performance or years of service, Stats NZ says.

For example, if an employee received a pay-rate increase because of a rise in the cost of living, this would be reflected in both the LCI’s primary measure of wage-cost inflation (adjusted LCI) and the unadjusted LCI.

However, if an employee gets a pay-rate increase for quality reasons, such as acknowledging good performance, this would only be reflected in the unadjusted LCI.

Average ordinary time hourly earnings are measured by the Quarterly Employment Survey (QES).

This figure is the mean value of wages and salaries paid per hour, excluding overtime in jobs measured by the QES, so it can rise or fall as the type of work being done changes.

In other words, if more Kiwis get high-paying tech jobs, we’d see average ordinary time wages rise, even if pay rates for high-tech workers didn’t rise.

ANZ economists expect annual wage growth to continue slowing.

Wage inflation, as measured by the private sector Labour Cost Index (including overtime), is expected to slow from 2.6% to 2.3%, and growth in private sector average hourly earnings (ordinary time) is expected to slow from 3.8% to 3.3%.

“At these levels, wage inflation can be considered broadly consistent with CPI [Consumers Price Index] inflation around target,” ANZ’s Miles Workman writes.

“But given we’re a decent clip from the labour market entering inflationary territory, it’s fair to say that disinflation pressures stemming from the labour market are set to continue for a while yet.”

In other words, the lousy job market means smaller wage rises and less inflation, so the Reserve Bank should be okay to keep cutting rates.

How bad are Trump’s new NZ tariffs? Who’ll pay?

New Zealand’s export sector was shocked last week by the US administration’s decision to slap New Zealand with a base tariff of 15%. We had been expecting 10%.

How bad it all is for New Zealand’s economy depends on who you talk to.

Clearly, those directly in the firing line are very concerned.

But economists haven’t been quite so worried.

While industry sectors are facing significant risks to demand for their goods, economists point out that the direct fallout isn’t likely to be material to our macroeconomic outlook.

“It doesn’t strike me New Zealand should be especially worried,” ANZ group chief economist Richard Yetsenga (visiting us from Sydney this week) said.

While the tariffs would be a significant burden for those exporters directly affected, it was important to step back and look at the potential costs in a broader economic context, he said.

“Obviously there’s a difference between 15% and 10%, but New Zealand exports about $8 billion a year to the US on a $400 billion economy. To do a quick bit of math, that’s 2%.”

ANZ Group chief economist Richard Yetsenga. Photo / Michael Craig

So 15% on 2% of GDP at worst.

Or as ASB chief economist Nick Tuffley put it, a maximum potential trade cost of $1.4b.

“How the costs will be spread remains a big variable. We know the importer technically pays the tariff price to US customs.

“But whether they are able to demand lower prices from New Zealand exporters to compensate will depend on pricing power. Every product is likely to be different.

So there is no easy equation for working out the likely costs.”

In some cases, US consumers may indeed have an unwavering demand for New Zealand products, even though they don’t know it.

Global beef prices are high right now and the US doesn’t produce enough low-grade minced beef for its hamburger industry.

Many US importers will still need to buy New Zealand beef, and if they baulk at paying the higher tariff price, then we have other markets right now that can take it.

The same is probably true of the high-grade dairy protein ingredients that Fonterra exports to the US.

Inelastic fantastic

In economic terms, what we are talking about here is the elasticity of pricing. Or the inelasticity (as the case may be).

Both dairy and beef ingredients may prove to be relatively inelastic, meaning consumers aren’t very price-sensitive.

They aren’t going to give up hamburgers or protein shakes any more than motorists are going to give up driving when petrol prices rise.

New Zealand has copped a competitive disadvantage versus Australia on 10% tariffs, but it remains to be seen just how much capacity the Aussies have to boost beef and dairy sales to the US.

A product like New Zealand wine might be more vulnerable. At face value, it is an elastic good, ie it is discretionary and consumers can easily substitute with cheaper US wines (or Australian, given their tariff advantage).

New Zealand Winegrowers advocacy general manager Sarah Wilson told Herald NOW’s Ryan Bridge the tariff announcement was “very concerning”.

“Your typical bottle of New Zealand wine, six months ago, that tariff was about 10 cents, and now we’re looking at more like $1.10.

“That’s $112 million in extra tariffs that’s got to come from somewhere.”

Wilson said it would be a decision for each business as to how those tariffs would be absorbed.

“My optimistic take is that New Zealand wine prices aren’t as elastic as they might seem at face value.

“We sell premium wine to sophisticated consumers. We’re not competing on price in the first place.”

US wine drinkers who are already prepared to pay more than US$20 (almost $34) a bottle might not be so concerned about an additional $1, if they’ve already decided they want a good New Zealand sauvignon blanc. Here’s hoping.

Global concern

We still face a broader layer of concern about what tariffs will do to the global economy.

Economists tend to try to look at the average (or effective) tariff rate on all goods going into the US.

According to Fitch Ratings, that sits at 17% after all the August 1 fallout so far.

“The US effective tariff rate is now 17% – about 8 percentage points lower than our April 3, 2025 estimate when higher reciprocal tariffs were originally announced, but around 3 percentage points higher than our estimate at the end of June 2025.”

The International Monetary Fund (IMF) boosted its global growth outlook last week (pre-August 1), based on the world’s economy coping better than expected with the tariff shock.

It now sees growth of 3% for 2025 and 3.1% in 2026 – an upward revision from April (when it picked 2.8% and 3% respectively).

But HSBC chief global economist Janet Henry (who visited New Zealand last week) warns that we haven’t felt the full impact yet.

“The US economy and indeed the global economy have been a bit more resilient than we’d feared at the start of April,” she said.

“But just because we haven’t seen the impact of this uncertainty weighing on growth doesn’t mean we’re not going to.”

Tariffs were here to stay, Henry said.

“We haven’t seen the end of them, and we will get more.”

The tariffs, alongside immigration policy (both slowing the inflow and increasing the outflow), would deliver supply shocks to the US economy, she said.

“They are going to mean US growth is lower than it would have been, and inflation is going to be higher than it would have been.”

“While it is a supply shock for the US, it’s primarily a demand shock for the rest of the world.

“The tariffs are designed to slow US import demand ... and the rest of the world will feel that in weaker exports.”

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up to his weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.