All go on the jobs front

By BRIAN FALLOW

June employment figures show the labour market is still tight - and job advertising levels suggest it will stay that way.

Unemployment is at its lowest for 14 years, the participation rate is just under its record high in March, and employment grew 0.6 per cent in the quarter and 3.1 per cent for the year.

All of the quarter's employment growth is in full-time jobs. Part-time employment fell 1.2 per cent.

The number of hours worked rose 2.4 per cent in the quarter, although some of that is because Easter was early this year.

ANZ Bank's watch on newspaper job advertising levels recorded a 1.5 per cent drop last month.

"But at close to 30,000 a month, job ads remain at levels consistent with further employment growth," ANZ chief economist David Drage said.

Unemployment was likely to fall below 5 per cent during the second half of the year.

Advertising levels appeared to have reached a plateau after rising during the first half of the year, regaining about a quarter of the sharp drop recorded between July and November last year.

That drop was largely explained by the inflow of migrants, which eased some of the pressure on the labour market and reduced the need for employers to re-advertise positions, Drage said.

The gradual increase in advertising levels since then was consistent with strong employment growth over the first half of this year.

"However, an increase in the labour supply has eased some of the pressures, as reflected in the fact that job advertising levels remain below their peak in July last year."

Statistics New Zealand said half of the 51,000 increase in the working-age population in the year to June came from immigration.

Drage said yesterday's employment data suggested household incomes continued to rise in the June quarter and that the labour market was still tight.

Other indicators also pointed to strong domestic activity and inflation pressures.

In the quarterly survey of business opinion, the number of firms citing lack of demand as the main factor limiting activity was the lowest since 1985.

"[Wednesday's] retail sales figures were solid, and while there was the usual winter slowdown in the Real Estate Institute data, it was the second-strongest June since 1989," Drage said.

"Overall the domestic economy looks to be in rude health."

Coming at a time when inflation is close to the top of the target band and price increases are widespread, these domestic pressures were likely to be seen by the Reserve Bank as a compelling case for further interest-rate increases, Drage said.

Monetary conditions had eased since the July official cash rate review as the dollar lost earlier gains.

He said the bank might see falls in longer-term interest rates - caused partly by sharemarket turmoil encouraging investors to move to fixed interest - as undoing its efforts to lift rates and control inflation.

Even so, ANZ expects the Reserve Bank to leave the official cash rate unchanged at 5.75 per cent next Wednesday because of the uncertain international environment.

"But it will be a postponement rather than a cancellation of further tightening," Drage said.

"We expect to see the OCR at 6 per cent by the end of the year, peaking at 6.5 per cent in mid-2003."