Other bank economists are picking the unemployment rate to hold steady at 5.3%, as job creation starts to keep pace with growth in the workforce.

“An emerging return to jobs growth means that the unemployment rate has likely reached its peak for this cycle,” Westpac senior economist Michael Gordon said.

Higher-frequency indicators – such as monthly filled jobs numbers – had pointed to a modest lift in jobs in recent months, enough to match the growth in the working-age population, Gordon said.

ANZ, Kiwibank and Westpac economists see the unemployment rate unmoved from the September quarter.

It has remained relatively stable (5.2% in the June quarter and 5.1% for the two quarters before that) for the past year, although the topline figure has been flattered by a falling participation rate in the labour market.

The participation rate has fallen for five consecutive quarters.

That reflects the fact that large numbers of people have either stayed longer in school or have returned to further training as job opportunities have dwindled.

“We have pencilled in a stable participation rate at 70.3%, but given the recent improvement in economic activity, we wouldn’t be surprised if this were to increase slightly,” said ANZ senior economist Miles Workman.

A higher unemployment rate than forecast, owing to higher participation, wouldn’t necessarily indicate the labour market was on the wrong trajectory, he said.

“While it would point to a more disinflationary labour market than the RBNZ anticipates, it would also add to the evidence that conditions are rounding a corner, with labour supply responding to improving job prospects.”

In an early sign that the labour market was close to rounding a corner, both hours paid and hours worked lifted in the third quarter, he said.

“While these data can be volatile from quarter to quarter, the low base and the signal in the high‑frequency indicators for [the fourth quarter] suggest we will see another rise, adding further evidence that although the headline unemployment rate has held up, labour market conditions are gradually improving.”

ASB’s Smith said increases in the working-age population and an increase in labour force participation from five-year lows might generate the first climb in annual labour force growth in more than a year.

Labour cost growth was expected to remain slightly above the midpoint of the 1-3% inflation target band, he said.

“But, with the demand for labour stirring and spare labour market capacity eroding, conditions are in place that will see a pick-up in wage inflation over 2026,” Smith said.

“Reducing labour market slack suggests the need to normalise OCR settings.

“We expect a 25 basis point hike in December and a 3% OCR endpoint, but note the risks are pointing to a larger and more frontloaded pace of OCR hikes.”

Liam Dann is business editor-at-large for the NZ Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.

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