The ‘hoarding’ of workers by businesses may have kept unemployment significantly lower than would have been the case – and there’s a risk the situation could now reverse, economists at the country’s largest bank believe.

In an ANZ Insight publication, senior economist Miles workman said economic modelling suggested that the decision of firms to hoard workers in anticipation of economic recovery might have reduced the unemployment rate by about 0.5 percentage points in recent quarters.

In other words instead of the rate being 5.1% as recorded at the March 2025 quarter, it could have been 5.6%.

(New figures for the June quarter out on Wednesday of this week are expected to have shown an increase in the unemployment rate to 5.3%)

Workman said if the economic recovery firms are anticipating fails to materialise with sufficient strength (as many high- frequency indicators are currently suggesting), firms may be forced to ‘right-size’ their work forces through layoffs instead of waiting for demand to catch up.

“This shift could amplify the rise in unemployment and exert downward pressure on inflation, necessitating a lower OCR [Official Cash Rate] than the 2.5% terminal rate we are currently pencilling in,” Workman said.

At the moment the OCR stands at 3.25%. It is, however, widely expected that the Reserve Bank (RBNZ) will cut the rate to 3.00% at its next review on August 20. However,  financial market pricing currently suggests it won’t go much lower and possibly won’t even hit 2.75%, let alone under 2.5%.

ANZ’s Workman says that while inflation “still isn’t quite where the RBNZ want it to be”, and structural/ administrative price pressures are a worry,  “it may not take much of a slowdown before the market-driven side of the CPI basket threatens an undershoot in inflation”.

The RBNZ is charged with keeping inflation, as measured by the Consumers Price Index (CPI) in a 1% to 3% range. As per the June quarter the annual rate of inflation had risen to 2.7%, but the RBNZ believes the current surge will be temporary.

Workman says he’ll be watching data closely over coming quarters for signs that firms are starting to shed their hoarded labour.

“All in all, most signals suggest firms have less balance sheet strength to hold on to labour than they did a year ago,” he said.

“…If the [economic] recovery doesn’t materialise with the gusto firms have been anticipating, the labour market could be hit with a double whammy: weaker-than-otherwise demand for labour and a shedding of hoarded labour,” Workman said.

He said although recent inflation data remained a little too high for comfort, the RBNZ will need to start putting more weight on downside medium-term inflation risks.

“That suggests a dovish pivot could be on the cards at some point this year.”

Workman said the motivation behind labour hoarding is intuitive: it is typically costly to hire and train new staff, and if firms expect the current lull in demand to be temporary (and they have the balance sheet capacity to pay for it), it might make sense to hold on to workers so the business is well positioned to respond when demand for its goods and/or services picks up again.

“But what happens if the economic recovery many firms have been anticipating doesn’t arrive with the gusto they have been expecting, and firms decide to start shedding hoarded labour? In this scenario there could be two forces contributing to worse labour market outcomes than otherwise: the impact of weaker-than expected GDP growth on labour demand, and the unwinding of past labour hoarding. These forces would very likely feed one another.”

Workman said based on their forecast for GDP growth, if labour hoarding were to stop containing upward pressure on the unemployment rate, it would lift to just under 6% by the end of the year.

The RBNZ has been forecasting a peak of 5.2%.