New Zealand unemployment data preview: what the numbers really reveal about the economy
Chelsea Daniels interviews NZ Herald Business Editor-at-Large Liam Dann about upcoming unemployment data from Stats NZ and what it signals for the broader economy.
Summary
Host Chelsea Daniels speaks with Liam Dann about the upcoming Stats NZ labour market release, which is expected to show unemployment holding around 5.4–5.5%. Dann explains that the headline figure is less important than underlying measures such as employment growth, labour force participation, and underutilisation. He warns that growth in the labour market may be outpacing job creation, which could push the unemployment rate up slightly regardless of any positive hiring activity. The conversation also covers the emerging risk of stagflation — a combination of rising inflation and economic contraction — driven by an oil shock, and the difficult position this creates for the Reserve Bank in setting interest rates.
Key Takeaways
FULL TRANSCRIPT
Introduction and what the Stats NZ labour market release contains
Chelsea Daniels: New Zealand's unemployment rate is expected to hold steady, at least on paper, when new data is released this week. But beneath that headline number, economists are warning the labour market may already be weakening just as global tensions and an oil shock begin to bite. There are also growing concerns about something called stagflation, where higher unemployment and rising inflation collide, and what that could mean for households and the wider economy. Today on The Front Page, NZ Herald Business Editor-at-Large Liam Dann is with us to unpack what to look for in the latest data, what it really tells us about the state of our economy, and what could come next.
First off, Liam, what exactly are we going to get from Stats NZ this week — this unemployment data?
Liam Dann: Yeah, well, it's the labour market statistics. So it is the official unemployment rate, but we'll get lots of other bits and pieces that will build a complete picture of what's happening in the labour market. So you get stuff like the utilisation rate, or underutilisation rate — people who have some work but would like some more — and you can see whether there isn't enough of that contract work in the economy, that sort of thing. And of course you get wage data, which is quite key to what's happening in inflation. If wages are going up — hourly rates — there are a couple of measures of wages that can point to inflation. Obviously we'd like to see wages going up so that New Zealanders are earning more, but that has to be underpinned by some real value creation.
So there's all that stuff. We also get a sense of the size of the labour market — the number of people who are actively looking for work or in the labour market, as opposed to people who might have dropped out to become students, or maybe just given up looking altogether out of despair. So it's really talking to people who are either in the labour market working or are actively looking for a job. If you're not in any of those categories, you don't get counted, even if you're on a benefit.
Chelsea Daniels: Right. So economists seem to be split between the figure being anywhere between 5.4% and 5.5%. In practical terms, is that difference — that 0.1% — meaningful at all? What does it tell us?
Liam Dann: No, look, it's not hugely meaningful. What will be meaningful — and another thing that will be in this data — is job creation, or employment growth. So how many more people are employed, as opposed to how many are unemployed, and what's happened to the labour market as I mentioned. So what we might see is that if things have gone well in this quarter — this is the first quarter we're talking about, mostly before the war — then we might have seen some job creation and some employment growth. And I think economists do expect to see some employment growth, but they also feel that the total labour market has grown, whether that's a slight uptick in immigration, just because Kiwis aren't leaving in quite the same numbers that they were, a few more people coming back into the job market because it was looking more promising, or people coming out of being students. And I think the general view is that the growth in the labour market will be enough that it soaks up any employment creation we've had. And that's why some economists think we may see the unemployment rate rise slightly. Some see it sticking at the same 5.4 that we had in the last quarter of 2025. But that's pretty marginal. I think the story it's telling will be fairly similar regardless.
The difference between unemployment statistics and benefit numbers
Chelsea Daniels: When some people think about someone who's unemployed, the first question they might ask is, well, they're on the benefit. That's not always the case, right?
Liam Dann: Yeah, well, it gets complicated. There are two sets of ways that we measure that kind of unemployment. There's the official Stats NZ figure, which is based on a labour market survey — they survey a big enough chunk of the population to get a statistically accurate measure. That's confused people, especially a few years ago when the two measures diverged quite strongly. So yeah, you also have the benefits, which is your jobseeker support. And then just to confuse things further, there's a total jobseeker support number — that's people who are on the benefit. But the government, several years ago, crunched together those stats so that it includes what used to be called the sickness benefit, which covers health conditions or disability. So you kind of have to split the benefit numbers into jobseeker support work-ready — as in ready to go — and jobseeker support health condition or disability.
Those numbers still diverge a little bit. One of the things about the benefit numbers is that some people focus on them and say we should really pay more attention to them, but they are variable based on how government work policies are setting eligibility for benefits and all that sort of stuff — that can change quite a lot. Whereas the unemployment survey by Stats NZ has been done pretty much the same way since 1986. So you get a long series of data that we can really benchmark against other eras. How are we doing? We can look at a rate like 5.4 or 5.5 and say, how does that stack up against, you know, economic good times? Has it been a lot worse? And the answer is it has been a lot worse, and it has been a lot better.
Chelsea Daniels: Right. So the jobseeker support — if we had a look at those numbers and stood back and had a glance at them over a number of years — there are just probably too many variables and too many changes in policy to really gain anything from looking at, say, jobseeker benefits in the year 2000 versus now?
Liam Dann: Yeah, there's a lot of changes — the way we classify disability or health conditions and that sort of stuff. In fact, we've seen those benefits rise quite a lot over time. The latest we have is March 26th — 118,000 on the work-ready jobseeker benefit. I think the last official unemployment figure would have said there are 165,000 unemployed people in New Zealand. So that would actually say it was higher at the moment. I have had political debates in the past where people have gone, oh, well, you throw in the total jobseeker support number and you get up above 200,000. And there have been people who suggested that when we had a low unemployment rate during COVID, that was flattering the whole situation when actually we had increasing benefit numbers. And there was something to that. If you've got your benefit numbers going up but you've also got an intense labour shortage, there's probably something wrong there. It tends to be quite an intense political argument, really.
What the data means for ordinary workers and wage growth
Chelsea Daniels: Why should the average Kiwi care about unemployment data, especially if they're full-time employed?
Liam Dann: Well, it goes to what the conditions are in the labour market. If you are employed, great, but you may not be next month. If it's getting a lot worse, it suggests that companies are laying off staff. If you're seeing the unemployment rate rise dramatically, you also want to see job creation — you want to see employment growth. And I think the wage data is pretty important because when you think about how we get our pay rises, often it's to do with the supply and demand in the labour market. If there's been a huge boom in, I don't know, the media industry, and there's just so much demand for podcast presenters right now — that's a good thing for you in terms of commanding more from your employer, or job mobility, switching employers.
Chelsea Daniels: I'm not sure that's always the case in the media, but that's just an example.
Liam Dann: You could have chosen a better example, to be fair. But the more job opportunities there are, the more in demand workers are, and the higher wages will go. So there is a relationship between the wage data and the unemployment rate. If the unemployment rate is very low, as it was during COVID, and we had that labour shortage, we actually start to see much higher wage rises as well. And that can be a good thing. It can also be a bad thing if it's not tied to productivity and real wealth creation, because it just starts to feed into inflation. The employers have to pay more for staff, so they start charging more to cover those costs. And without any actual wealth creation, it just inflates the numbers. And that's the kind of inflation that is not very good for the economy.
Chelsea Daniels: How closely does this feed into the Reserve Bank's decisions on things like interest rates?
Liam Dann: Well, they used to have two measures — keep inflation between 1% and 3%, and keep the unemployment rate at a subdued level. They've been returned to the single mandate, which is just to look at inflation. The theory would be that unemployment should look after itself, or that fiscal policy will do the job there. I think they still pay some attention to unemployment, but underlying it is that inflation thing I talked about. So they will be looking very closely at wage inflation.
We had this sort of glimmer of a recovery before the war stuff — it was like, okay, there's a recovery, it's all happening, green shoots. And so they're looking for signs that inflation is taking hold beyond, say, the oil shock causing petrol to go up, which is outside their control. They're looking to see whether that's flowing through into the actual domestic economy. A combination of some economic growth perhaps in the first quarter, and how employers are reacting to the oil shock, could offer clues. They'll look at that wage data. And if it's really subdued — which it probably will be, because unemployment is still relatively high in terms of, say, the last ten years or so — then that's going to subdue wage growth. And that's actually, weirdly, a positive for those of us who are worried about inflation and where interest rates are going.
So you have this weird situation where things in terms of inflation and interest rates are a lot worse in Australia. They're up to 4.6% inflation and their interest rates are rising already. And you get economists like Paul Bloxham from HSBC saying New Zealand's in much better shape — they won't need to put up interest rates and their inflation stays subdued. And that's because our economy is way more terrible.
Chelsea Daniels: Yeah, good.
Liam Dann: So because we have the spare capacity in the economy, we're less likely to suffer as much of an inflation shock, because there just isn't enough room for it. There's a lot more pressure on businesses not to lift costs than when you've got the economy really rolling.
The stagflation risk explained
Chelsea Daniels: There's been this talk of a stagflation risk. Firstly, that's a word I've never seen before. What is it, and what does it look like in a New Zealand context?
Liam Dann: Yeah, it's the worst thing that can really happen to an economy.
Chelsea Daniels: Oh, good. So it's good that they're talking about it.
Liam Dann: Yeah, that's a good starting point. We've had it at times — the late 70s and things. So what you're talking about is the worst combination of economic circumstances, where you have inflation rising and the economy contracting at the same time. Normally there's a sort of seesaw lever — if the economy's booming, inflation might start to pick up because there's so much money flowing around and prices start to get exaggerated. And that's why we can't just give everyone $5,000 each.
Chelsea Daniels: Yeah, yeah.
Liam Dann: And it's why interest rates have to go up to keep it under control, which dampens some of the growth in the economy. But then on the flip side, if the economy is contracting and you've got a recession, well, people aren't putting up their wages, they're desperate for business so they'll drop their prices, and things will be contractionary and disinflationary. A genuinely lousy economy means low inflation, and a booming economy raises the risks of inflation — and they sort of balance each other out, so you've got one or the other.
In weird circumstances like this kind of supply shock — where there's a massive price spike in something that we all have to use — it creates inflation. That can happen at the same time as you have the economy not firing and actually doing badly. And then you've got the worst of both worlds. You haven't got the economic growth that would drive wages up, but you have got prices rising. And it creates a real dilemma for the central bank, because interest rates are used to keep inflation down, but they tend to suppress the economy further. So do they put the rates up to deal with the inflation and risk really slamming the economy more, which would mean more unemployment?
At the moment there's a lot of wait and see, and trying to do the balance — trying to work out the net equation — because there are effects we don't know exactly. How much will people stop spending because of the extra money they're spending on petrol? And if they really stop spending and we go into recessionary conditions, then maybe the Reserve Bank would want to just look through the inflation, because it should start to play through and then fall because the economy's in such bad shape. But it's not quite clear to what extent yet. And if inflation is really strong and does start to flow through into the pricing that businesses are doing, then they will have to put the rates up.
So yeah, a lot of wait and see. At the moment, the expectation is that they will probably have to put the rates up later this year — they probably would have been heading that way anyway. But I think there's a view that maybe they should head off the inflation first, try not to put them up so high that they crush the economy, but just make sure it doesn't get back to that sort of horrible 7% kind of inflation we had during COVID.
Chelsea Daniels: And it's not just fuel prices that people might stop spending over. If you are worried about the longevity of your position at your current workplace, you may stop spending as frivolously as you might have as well. So the unemployment data comes in handy in that sense, I suppose.
Liam Dann: Yeah, that's right. If people don't have job security, they're less likely to spend on big purchases, that kind of thing. And again, that will dampen economic growth and should take inflation out of the economy, at least in the core of the domestic economy.
So yeah, it'll be interesting to see how things play out. At the moment, my gut feel would be that we had some employment growth at the start of this year because businesses were starting to think, right, the recovery's coming, I'm going to expand and do some new business and take on some new challenges. Then of course the war and the oil shock hit, and that creates an enormous amount of uncertainty. So I think a lot of plans have gone on hold. I don't think businesses are keen to be cutting staff yet. And of course the other thing is how long does it last? Are we talking about a three-month aberration and then we can get back to normal? We don't know. Nobody knows.
The risk of over-interpreting small movements in the data
Chelsea Daniels: I suppose when we're talking about 0.1% of a figure, going back and forth and interpreting this data — is there a risk of over-interpreting the data, those small movements, at a time when the outlook is so uncertain?
Liam Dann: Yeah, absolutely. I think the media will — and I'm part of it, so I'm not just blaming anyone here — but people need to focus on something to make these stories have a narrative that gels. And so that top-line unemployment rate, what the economists would call the headline figure, does tend to get the headlines. And the headline is often quite binary. So if it's 5.4, that's the same as last time — more boring. If it's 5.5, it's gone up — "Unemployment rises," that's your headline.
But what the economists will really be taking more seriously is how much employment growth there has been, what's happened to the labour market in terms of the size of the market itself, people participating, and things like underutilisation. Because underutilisation is a really interesting one because it can mask things. I think that's probably what has changed a bit in the last 20 or 30 years — you've got a lot more people working on contracts, freelancing. If you work even one hour, you're not unemployed. You don't count in that official unemployment statistic. So if you were a freelance podcast producer and you only got one hour's podcasting work —
Chelsea Daniels: I don't know why you keep using that example. Do you know something I don't?
Liam Dann: Yeah. You would not be unemployed, but you would count as being underemployed. You would be underemployed and you'd want more work — it would still be a symptom of an economy that hasn't got enough work in it.
Chelsea Daniels: Thanks for joining us, Liam.
Liam Dann: Yeah, no worries.