Inside Economics: Why the job market feels worse than the numbers look

Unemployment remains below the historical average, but it feels much worse. Photo / Depositphotos

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.

Unpacking those grim job numbers

According to Stats NZ’s employment indicators, out on Monday, there were 27,850 fewer jobs in New Zealand in June compared to the year before.

That sparked a round of grim headlines about how tough the labour market is and how bad the economy has been this winter.

I think, sadly, we can expect that tone to remain for the next few months at least.

Next week, we’ll get the official unemployment rate, based on the Stats NZ Household Labour Force (HLFS) survey.

This week’s data were part of a monthly series that Stats NZ produces by tracking payroll filings with the IRD.

It’s timely data, but often prone to revision.

That big one for economists arrives next Wednesday with Stats NZ‘s quarterly labour market data release.

That will include employment and unemployment statistics from the HLFS as well as wage data from the Labour Cost Index and the Quarterly Employment Survey.

After seeing the monthly employment data this week, economists at BNZ and ANZ are expecting unemployment will land at 5.3% – up from 5.1% for the March quarter – and higher than the Reserve Bank’s earlier forecast of 5.2%.

As expected ...

It’s probably worth remembering that none of this is a surprise.

These numbers have been widely forecast by economists.

In April last year, as the job market was starting to get tough, I wrote: “Economists expect that there will be somewhere between 30,000 and 50,000 more unemployed people by this time next year.”

“Expectations are that we’ll eventually see the unemployment rate peak between 5.1% and 5.7% in this cycle.”

And here we are.

Hopefully, unemployment peaks soon, although based on the gloomy second quarter we’ve just had, it might not be until the end of the year.

It’s likely that it will peak at around 5.5% which, believe it or not, is in line with the historical average.

Stats NZ’s long-running Household Labour Force Survey shows the average rate has been 5.5% since 1986.

The data reached an all-time high of 11.2% in September 1991 and a record low of 3.2% in March 2022.

If it’s just average, then why does it feel so bad?

One issue is that we are coming off that record low in 2022.

So the transition we’re experiencing is intense, even if the end point isn’t going to be historically unprecedented.

The level of unemployment is also being flattered by the large number of Kiwis leaving the country or opting out of the workforce to return to study.

The participation rate – the number of adults actively engaged in the job market – has fallen to around 70%, the lowest rate since 2020.

Another factor that may be skewing the average is the number of underemployed people.

The HLFS is very specific in its definition of unemployment.

It only counts people who have worked no hours at all. Those who worked part-time but would like to work more hours are classified as underemployed.

It seems likely that higher levels of underemployment are also flattering the topline unemployment rate.

So while the official unemployment rate tends to get all the headlines, these other variables are important to factor in.

Different measures

Economists can also look to data from big recruitment firms like Seek.

The number of published job ads is a good barometer of the labour market.

June figures were released by Seek this week.

BNZ economists noted that the trend in job ads had “resumed its downward slide, declining another 1.2% in June”.

Then there are the Ministry of Social Development’s benefit numbers.

They aren’t looking too flash either.

There was a total of 216,000 people on a Jobseeker benefit in June, up from 196,000 a year earlier.

Confusingly, the Jobseeker benefit category now includes those we would once have called sickness beneficiaries, as well as those we’d call unemployed.

When we strip out those with health conditions or disabilities, the total was 120,000, up from 114,000 in June 2024 and 99,000 in June 2023.

Despite all the intricacies and variables of the different measures, one thing we can say with confidence is that the labour market does not look to be in good shape – and the trend is still getting worse.

But the labour market is considered a “lagging indicator” for the economy.

In other words, it’s about the last thing to turn in an economic cycle.

On the way down, employment usually holds up well as the economy slows.

Firms are reluctant to let good workers go, knowing how hard it can be to find staff when things get busy again.

On the flipside, unemployment often peaks well after the economy has begun its recovery, as firms remain cautious about expanding and hiring new workers until they are confident that the upturn will be sustained.

That perhaps offers some consolation as gloomy employment numbers continue to roll in over the next few months.

It’s always darkest before the dawn and all that ...

Bright spots

Monday’s job numbers weren’t all bad.

For starters, the monthly numbers were positive (just) at 0.1%.

But economists weren’t hugely impressed by that, given these monthly figures tend to be revised down.

Revisions to previous months contributed to the worse-than-expected annual result.

More promising were figures that showed the primary sector is creating jobs.

The sector had its largest month-on-month rise, at 0.9%, since 2023.

As Infometrics economist Matthew Allman noted: “Emerging trends in filled jobs seem to match broader trends we have been seeing in the economic recovery, with better export earnings boosting the primary sector.”

But the flow-on effects are yet to hit other areas of the economy, such as the manufacturing and services industries, he said.

That’s creating a regional divide too, as southern regions benefit from the agricultural export boom.

Southland, in particular, has experienced solid job growth in recent months.

Here’s hoping some of that positivity flows north.

The biggest hit to employment in the past year has been in the construction sector.

Compared to the previous year to June, construction lost 12,169 jobs (down 6%).

It’s not surprising Auckland’s economy is struggling.

Trump’s tariff deadline looms

Donald Trump’s big tariff deadline is looming large this week and somewhat predictably threatens to rattle markets, which have been on something of a bull run in the past few weeks.

It passes on Friday (Saturday NZT).

European Commission president Ursula von der Leyen (left) shakes hands with US President Donald Trump during a meeting at the Turnberry Golf Club in Turnberry, Scotland. Photo / Getty Images

The US has now done deals with Japan, the UK and Europe and it looks to have some kind of truce with China, so that should help ease concerns.

There’s also a likelihood of further deadline extensions if it looks like markets are seriously melting down.

Trump has shown over the past few months that he is prepared to push things to the brink but will do what he has to in order to avoid a major crash – even if that leaves him looking like he has backed down.

But the deadline remains a wildcard in a week of big economic news for the US.

Economists estimate that the US will likely end up with a baseline average tariff of around 15-20%.

Markets seem to have accepted that so far.

But while that is an improvement over the shock and awe of Trump’s Liberation Day proclamations, it still represents a major setback to global trade.

We’re also still waiting to see what the real-world effects of the tariffs will be.

So far, the impact on US inflation has been muted.

On the one hand, that is promising. Perhaps the tariffs won’t be as economically damaging as everyone expected.

On the other hand, with the delays and deals, we’re yet to see the full impact of the tariffs and the positive early signs might just embolden Trump to push a bit harder.

We’ll also get an interest rate decision from the US Federal Reserve on Wednesday in the US (Thursday NZT). It is not expected to cut rates, which means we can probably expect some fireworks as the President makes it clear what he thinks of that.

The US also gets jobs data and GDP data this week. So all up it’s looking like a big week for markets as they try to unpick the state of the United States.

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.