Economic Data 290726 Q226 labour market preview bulletin 29Jul26

ECONOMIC BULLETIN Preview of Q2 labour market surveys: 5 August, 10:45am.

29 Jul 2026 | Michael Gordon, Senior Economist | |

Job growth remains subdued. • We expect the unemployment rate to tick up to Q1 actual Q2 forecast 5.4% for the June quarter. Quarter Westpac RBNZ

• The jobs market has held its ground through Household Labour Force Survey the Middle East conflict, but it hasn’t gathered Unemployment rate 5.3 5.4 5.4 the momentum that we would have otherwise Employment growth 0.1 0.1 0.1 hoped to see. Participation rate Labour Cost Index • With employment not keeping pace with All sectors, ordinary time 0.5 0.6 - population growth, we would expect to see a Private sector, ordinary time 0.4 0.6 0.6 rise in the unemployment rate and/or a fall in labour force participation. Unemployment and participation rates • Wage growth is likely to remain subdued, given the existing slack in the labour market. 8 % % 73 Sources: Stats NZ, Westpac

• Our forecasts are in line with what the RBNZ 7 72 71 expected in its May statement. The labour 6 70 market tends to be a lagging indicator, and 5 Westpac 69 June quarter data is unlikely to shed light on 4 forecasts

68 the extent of second-round inflation pressures. 3 67 2 Unemployment rate (left axis) 66 1 Participation rate (right axis)

We expect next Wednesday’s surveys to show a soft but steadying labour market over the June quarter. Employment has been gradually picking up again in recent months, but not quickly enough to keep up with population growth. That points to the likelihood of a further rise in the unemployment rate, although it’s not obvious that it will extend beyond its recent peak of 5.4%. This comes after a slight fall to 5.3% in the March quarter, which was unexpected but not really reflective of the otherwise soft details in the survey.

1 Westpac New Zealand Economics

Our forecasts are in line with what the Reserve Bank have started to improve. Job vacancies have picked up expected in its May Monetary Policy Statement forecasts. from their lows, but they remain well below pre-Covid While events in the Middle East have been moving quickly levels. Meanwhile, those who are out of work have found since then, it’s unlikely that this would have changed it increasingly difficult to get back in, and long-term the RBNZ’s near-term assessment of the labour market unemployment has been a much greater issue than we’ve – jobs tend to be a lagging indicator of the economic seen in previous cycles. cycle. That’s even more true of wage growth, which we While cost-of-living pressures have reared up again as think will continue to reflect the moderation in inflation a concern for households, the existing degree of slack pressures over 2024-25 rather than the recent uptick. in the labour market is a crucial difference between Heading into the 2 September policy review, the question now and the surge in wage growth that we saw in the of how quickly OCR hikes will proceed from here is most post-Covid years. We expect a 0.6% rise in the Labour likely to come down to the RBNZ’s assessment of last Cost Index (LCI) for the June quarter, keeping annual week’s inflation data, and their own inflation expectations growth just below 2%. Public sector pay increases are surveys which will be released over August. probably running behind the private sector now, with the impact of past collective agreements dropping out of the Forecast details. annual calculations. We expect a 0.1% rise in employment over the June Labour Cost Index wage growth forecasts quarter, which is broadly in line with the rise in filled jobs %yr %yr in the Monthly Employment Indicator (MEI). Filled jobs 7 7

began to gradually rise again from late 2025, and have 6 Private sector 6 held their ground through the uncertainty engendered Public sector 5 5 by the Middle East conflict – but they haven’t gained momentum in the way that they might otherwise have. 4 4

3 3 The MEI is drawn from income tax data and hence provides a fairly comprehensive record of the number 2 2

of jobs. While there are some conceptual differences 1 Westpac forecasts 1 between this and the quarterly HLFS, any differences Sources: Stats NZ, Westpac 0 0 between the two…