Dollar tumbles on jobless stats

Photo / Steven McNicholl

New Zealand's unemployment rate surprised markets as it surged back to a 10-year high in the second quarter, and encouraged investors to bail out of the kiwi dollar.

New Zealand's volatile unemployment rate rose from 6 per cent to 6.8 per cent during the June 2010 quarter, Statistics New Zealand announced.

Economists were expecting the jobless rate to rise to 6.4 per cent after its biggest decline last quarter, but today's rise took them unawares after a relatively benign Quarterly Employment survey released earlier this week.

The kiwi sank 0.8 per cent to 72.89 U.S. cents immediately after the announcement, and recently traded at 72.74 cents.

The currency had held up in spite of falling dairy prices on Fonterra's online trading platform.

"This rise unwinds much of the drop in unemployment seen in the March 2010 quarter, and indicates a period of volatility in the labour market," said Statistics NZ.

Unemployment rose 19,000 during the June 2010 quarter to reach 159,000, marked by an increase in unemployed males.

As with the fall in the March quarter's unemployment, the rise this quarter was largely unexpected, and reflected movements among younger males.

"There have been recent fluctuations in both employment and unemployment, which can occur during periods of major change in the labour market," said manager of labour market statistics Peter Gardiner.

"These movements indicate that the labour market is still adjusting to the changing economic climate."

The recent volatility in unemployment estimates is making it more difficult to interpret the results, said Gardiner.

"The underlying or trend unemployment rate, which excludes seasonal and unexpected changes can be used to help understand labour market conditions. At 6.7 per cent, the trend unemployment rate has been relatively flat since September 2009."

Goldman Sachs JB Were economist Philip Borkin said the volatility in the rate was unfortunate and made interpretation difficult.

"All we can hope is that this volatility will now settle down. Looking across the entire array of labour market data, we do feel that the labour market has turned a corner and is gradually on the mend."

Business surveys were consistent with that, with more firms intending to hire staff, he said.

"However, a 6.8 per cent unemployment rate is quite different to a 6.0 per cent rate."

ANZ Bank economist Khoon Goh said this morning's jobs data "was much weaker than we or the market were expecting."

Goh said the "extreme volatility" in the data made interpretation difficult, describing the survey as "the lottery that is the NZ Household Labour Force Survey."

There were, however, signs that underlying labour demand was improving, with hours worked rising 0.6 per cent, following a 1.3 per cent increase in the previous quarter.

" But it is clear that employers are choosing to work their existing workforce longer rather than take on new staff," said Goh.

Today's data, alongside the recent run of "weaker than expected domestic data" strongly pointed to a pause in the Reserve Bank's 'tightening cycle' - its progressive raising of official interest rates.

Goh said he had "pencilled in" one more rates hike in September, but even then, had only ascribed a 60 per cent chance of a move.

"We expect a pause thereafter," he said.


JOB NUMBERS

6.8 per cent - up from 6 per cent in the March quarter, which was a huge fall from 7.1 per cent.

6.4 per cent - Consensus forecast of unemployment rate for June quarter.

-NZ HERALD / BusinessDesk