First Impressions: NZ Labour Market Statistics, September Quarter 2025
Samantha LuanThe unemployment rate rose to 5.3% in the September quarter, as expected. Employment was flat and more people exited the labour force, but there was an encouraging lift in hours worked.
The unemployment rate rose to 5.3% in the September quarter, as expected. Employment was flat and more people exited the labour force, but there was an encouraging lift in hours worked.
The September quarter labour market surveys were generally as subdued as we were expecting. The unemployment rate ticked up from 5.2% to 5.3%, its highest level since 2016. There was a similar rise in the broader underutilisation measure from 12.8% to 12.9%.
The number of people employed was flat for the quarter, broadly matching the signal from the Monthly Employment Indicator (noting that the MEI has picked up in the last two months but tends to be overstated on its initial release). With the working-age population growing by 0.3% over the quarter, this was absorbed through a combination of higher unemployment and lower participation. The participation rate fell from 70.5% to 70.3% – a slightly larger fall than we had assumed – and appears to have been spread across age groups.
One unexpected but encouraging result was a 0.9% rise in hours worked in the Household Labour Force Survey – the first quarterly increase since December 2023. The HLFS measure can be volatile and not necessarily a good indicator for quarterly GDP, but in this case it was backed by a rise in the jobs and hours measures in the Quarterly Employment Survey as well. Average hours worked had fallen markedly over the last year or so, implying that employers were adjusting to the soft economy by reducing hours rather than laying off workers; the latest quarterly result suggests that this trend is reversing (or was perhaps overstated in the first place).
Given the degree of slack in the labour market, wage trends were unsurprisingly subdued. The Labour Cost Index for all sectors rose by 0.4% for the quarter, a little below our estimate but in line with market and RBNZ forecasts. Public sector wages rose 0.6% (driven more by local than central government), while private sector wages were up 0.4%.
The unadjusted analytical LCI, which includes pay increases that are related to higher productivity, rose by 0.7% for the quarter. The annual growth rate slowed from 3.6% to 3.4%, its lowest since June 2021. The distribution of pay increases also continued to soften: 44% of roles saw no increase in the past year, the highest share since June 2021. For those roles that did see pay rises, the average size of the increase is converging on the 2-3% range.
The September quarter results were almost entirely in line with the RBNZ's forecasts, offering little for markets to chew on ahead of the 26 November Monetary Policy Statement. There are some early signs of the economy stabilising, but the existing degree of spare capacity will give the RBNZ confidence that inflation will moderate back towards the 2% target midpoint next year. We continue to expect a 25bp cut in November.
