For people who are unemployed or are looking for a new job opportunity, it is becoming increasingly difficult to land yourself a role. There is a lack of opportunities in the labour market and a surplus of talent looking for jobs, creating a highly competitive environment for job hunters.

Much of the focus of the weak labour market is on households who are facing reduced job security. This lack of job security stems from businesses who are grappling with suppressed household spending due to higher interest rates and other living costs. These weak demand conditions are combining with higher input costs for businesses to undermine profitability, meaning that businesses are thinking twice about replacing any staff that leave, because they have increasing spare capacity and sometimes a lack of sufficient work to keep everybody busy.

This article expands on our webinar last month, which focused on the labour market. We look at the latest job numbers, job ads, industry employment forecasts, and analysts’ expectations of when unemployment will peak.

Monthly employment indicators provide an early indication of changes in the labour market, measuring the level of filled jobs over a month from Inland Revenue data. Filled job numbers in June fell 0.2% from a year earlier, the first annual decline since November 2020 and just the second drop since July 2010 (see Chart 1). The annual fall continued into July, with job numbers down by 0.5%pa.

Declining job numbers indicate that some businesses are choosing not to fill vacancies when an employee leaves, and/or businesses are closing down because they are no longer financially viable.

The slowdown in jobs growth over recent months is looking worse than we had anticipated in late 2023. With businesses continuing to struggle, how does the labour market evolve from here?

Job ad numbers are a strong indicator of how filled job numbers are going to change in the future. SEEK job ad data showed that job ad numbers in July were lower than in July 2023 across all industries (see Chart 2). These figures point to much slower growth in employment to come across most industries and the likelihood of lower employment levels in some industries.

At an industry level, government and defence job ad numbers have reduced the most, down by almost 50%. This trend is driven by the coalition government’s focus on achieving cost savings across the public sector, with this goal restricting new hires and reducing staffing numbers.

The focus on cutting government expenditure is likely to be interrelated with the reduction in consulting and strategy job ad numbers (down 32% from July 2023), especially in Wellington. The government has spoken strongly against spending on consultants by government departments, which is driving down demand for consulting services and, consequently, job opportunities.

With job ads declining significantly, how have our expectations for employment over the next 18 months changed from our earlier forecasts?

We have recently published our updated Sector Profiles, which include forecasts of employment and skills demand by sector. Chart 3 shows the 10 industries that have seen the largest changes in expected employment for the year to March 2026, compared with the forecasts we published in February.

The flow-on effects of weaker construction activity have driven employment expectations lower for many related industries, particularly across parts of the manufacturing industry. With activity weakening, the need for key inputs like metal products will diminish, reducing the need for staff in these industries. Weaker expectations for rental and hiring services employment (7.3% lower) are also related to a softer outlook for construction activity.

Central government administration employment will be much weaker (5.3% lower than February’s forecast) due to the job cuts that have been seen across most government departments since our February forecasts. The focus on reducing government spending will restrict any additions to current teams and limit the development of new teams, resulting in lower employment than previously forecast. These trends are already showing through in job ad numbers.

Transport equipment manufacturing employment is expected to be almost 8.0% lower than previously forecast. This change is in part due to the shift in the government’s transport intentions, shifting away from rail to focus on roading infrastructure, but it also reflects a drop-off in vehicle registrations that will see less work in trailer and other commercial vehicle bodybuilding.

Our current forecast is that the unemployment rate will peak at 5.3% in June 2025. The range of predictions across other forecasters has little variation at the moment, with all forecasters predicting a peak between 5.3% and 5.6% (see Chart 4). It has been almost eight years since we saw the unemployment rate between 5.3% and 5.6%, although it would be a mild peak compared to previous downturns – the unemployment rate reached 6.7% after the Global Financial Crisis, 7.9% during the Asian Financial Crisis, and 11.2% during the early-1990s recessions.

An unemployment rate of 5.3% would see around 160,000 people unemployed, which is about 21,000 more than were unemployed in the June 2024 quarter. The marked weakness in current job numbers and job ads (as a proxy for future job numbers) point towards the risks of the unemployment rate reaching a level worse than current forecasts.

There have been suggestions in recent weeks, following the first official cash rate cut by the Reserve Bank, that the only way for the economy is up. But the effects of this interest rate cut, and future ones, will take time to flow through to lower mortgage payments for households and increased activity in the economy. In the meantime, we expect the weakening labour market to play a dominant role in households’ spending decisions. With unemployment set to continue rising, households will remain cautious with their finances, which we anticipate will continue to have negative flow-on effects for spending, demand, and business profitability into 2025.