WELLINGTON — New Zealand's unemployment rate climbed to an 11-year high in the third quarter, three days before a tight general election, underscoring the economic and inflation pressures dominating the campaign and sharpening the challenge for Prime Minister Christopher Luxon, who is seeking another term, Reuters reported on Wednesday, November 4.

Source: Reuters via 98.5 The River

The jobless rate rose to 5.7 percent in the three months to September, its highest since 2015, from 5.5 percent in the previous quarter, Statistics New Zealand said on Wednesday. Employment fell 0.1 percent from the prior quarter.

Source: Reuters via 98.5 The River

Weaker than anyone expected

The labour figures were weaker than market expectations, with economists in a Reuters poll forecasting unemployment of 5.5 percent and a 0.4 percent increase in employment; the Reserve Bank of New Zealand (RBNZ) had also forecast a 5.5 percent jobless rate. Even though economists say there are signs the economy has started to recover, unemployment has tracked higher and did not peak in the second quarter as the central bank had forecast.

Source: Reuters via 98.5 The River

Wage growth also moderated, adding to signs the economy is losing momentum: the private-sector labour cost index, excluding overtime, rose 0.4 percent in the quarter, slowing from a 0.7 percent increase in the previous three months, and annual wage growth eased to 2.0 percent from 2.1 percent in the second quarter. The weaker data saw the New Zealand dollar dip before returning to trade largely unchanged at $0.5592, while two-year swap rates fell 6 basis points to 3.7815 percent.

Source: Reuters via 98.5 The River

A verdict three days before the vote

Luxon's centre-right National Party-led coalition is facing mounting pressure to demonstrate that its policies can lift growth and ease cost-of-living strains, with an Ipsos poll earlier this week listing inflation and the cost of living as the top concern for voters ahead of the tight election contest on November 7.

Source: Reuters via 98.5 The River

Barbara Edmonds, finance spokesperson for the opposition Labour Party, described the jobs numbers as “a damning verdict on Christopher Luxon's economic management.” “His last chance to show his plan was working has come and gone, and Kiwis are paying the price… For working families, the pressure hasn't let up. The cost of living is still biting, bills are piling up and wages are struggling to keep pace,” she said in a statement.

Source: Reuters via 98.5 The River

Finance Minister and National Party parliamentarian Nicola Willis said the data reflects the impact of uncertainty on the economy and the need to stick with the current government's plan, which she believes is working to rebuild the economy. Luxon, the former Air New Zealand CEO, beat Labour leader Chris Hipkins in the 2023 election, promising to lower debt, bring down inflation and drive growth.

Source: Reuters via 98.5 The River

What it means for interest rates

The figures could lessen pressure on the central bank to resume interest-rate increases, after it surprised markets last week by keeping the official cash rate unchanged at 2.75 percent. The Reserve Bank said it wanted time to assess the impact of its two previous rate hikes, though it signalled further increases were still likely.

Source: Reuters via 98.5 The River

Kiwibank economists said the decision to hold rates looked increasingly justified as the labour market weakened. “A weak labour market acts as a pressure lid on price growth … and we are seeing it play out in real time,” they said in a note, adding that further rate increases would not be necessary if the trend continued.

Source: Reuters via 98.5 The River

The central bank currently has a single mandate to focus on inflation, although employment remains a component of decisions. Labour has promised that if it is elected, the central bank will be returned to a dual mandate covering price stability along with maximum sustainable employment — making Saturday's vote a decision about the central bank's job description as well as the government's.

Source: Reuters via 98.5 The River

What happens next

New Zealand votes on Saturday, November 7, with inflation and the cost of living at the top of voters' concerns, according to the Ipsos polling cited by Reuters. The last major economic release before polling day has handed the opposition its strongest headline and the government its hardest question: why, three years after promising to lower debt, bring down inflation and drive growth, is unemployment at its highest in eleven years? The answer voters give will also decide whether the Reserve Bank keeps its single inflation mandate or returns to a dual mandate under Labour.

Source: InvestingLive recap of Reuters/Stats NZ data