The economy continued to create jobs in early 2026, but the population also grew, and the labour market participation rate fell, new Stats NZ data show.
All up, the net equation delivered a slight fall in the unemployment rate for the first quarter of the year.
“The unemployment rate was 5.3% in the March 2026 quarter, compared with 5.4% in the December 2025 quarter,” labour market spokeswoman Abby Johnston said.
There were 163,000 unemployed people in the March 2026 quarter, compared with 165,000 in the December 2025 quarter, as measured by the Household Labour Force Survey.
Economists had expected the topline number to remain steady at 5.4% or rise slightly to 5.5%.
“The fall in unemployment stemmed from the unusual combination of a rise in employment along with a fall in labour force participation,” said Westpac senior economist Michael Gordon.
“We felt that the jump in the participation rate in the previous quarter was overstated, having been concentrated among young people during the school holidays, and would unwind this time.
“That did happen to some degree, but was balanced out by stronger employment among older groups than we expected.”
The underutilisation rate remained the same at 12.9%. There were 406,000 underutilised people in the March 2026 quarter.
Underutilisation is a broader measure of untapped labour market capacity than unemployment. It includes unemployed people, the potential labour force and people who are underemployed.
The Labour Cost Index (LCI) showed all salary and wage rates (including overtime) increased 2% in the year ended March 2026, while the unadjusted LCI increased 3.1%.
Private sector wages increased 2% over the year. Public sector wages increased 1.7% over the year.
Kiwibank economist Alexandra Turcu said the data showed an economy that was still under pressure, even before the war and oil shock.
“There’s still a lot of slack in the labour market. With demand already weak, higher prices are unlikely to translate into stronger wage growth, reducing the risk of domestically driven inflation,” she said.
“We think today’s data reinforces the view that there is little case for [Official Cash Rate] hikes in the near term.”
The urban hubs remained under pressure, with Wellington and Auckland’s unemployment rates increasing to 6.4% and 6.6%, respectively, ASB’s Wesley Tanuvasa said.
“This is consistent with our view that while the economic recovery was underway, it was multi-speeded. Labour market slack looks to have remained in the New Zealand economy, although the direction of travel was upwards.”
Youth unemployment remained elevated at 24.9% for those aged 15-19 years and 12.2% for those aged 20-24.
The proportion of young people aged 15 to 24 who are not in employment, education or training (the Neet rate) was 14.4% in the March 2026 quarter, compared with 13.3% in the December 2025 quarter.
That suggests those leaving school or university are finding it tougher to get work.
There was unanimous agreement among economists that the full impact of the oil shock is yet to be felt in the labour market.
The first-quarter numbers were never expected to provide any insight into the impact of the oil shock on momentum in the labour market, ANZ senior economist Miles Workman said.
But they did at least provide a starting point as we headed into it.
“The labour market was in recovery mode facing into the oil shock,“ he said.
“While it was broadly in line with the RBNZ’s [Reserve Bank of New Zealand] February forecast, it’s important to note that given how much the outlook has changed in recent months.”
The new figures revealed very little about the likely path for the labour market from here, Workman said.
“Changes to the RBNZ’s outlook come the May MPS [Monetary Policy Statement] are likely to have bigger implications for their policy assessment.”
ANZ remained comfortable with its OCR call, Workman said. ANZ is picking monetary policy normalisation to kick off with a 25-basis-point hike in July, followed by hikes in September and October. That would take the OCR to 3% by the end of the year.
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.