KEY POINTS:
Reserve Bank Governor Alan Bollard might now start cutting interest rates in September, economists say, after the economy shed 29,000 jobs in the first three months of the year.
Previously, most market economists had expected it would be December before Dr Bollard started to press on the monetary accelerator.
He has been publicly fretting about the risk of a wage-price spiral if too many pay increases reflect the higher cost of living rather than a slowing economy.
Yesterday's unexpectedly weak numbers were seen as lessening those concerns and so bringing forward the start data for a series of interest-rate cuts.
Statistics New Zealand said the number of people employed fell 1.3 per cent in the March quarter.
The number of full-time workers fell even more, by 1.7 per cent.
"It's a shocker," said Westpac chief economist Brendan O'Donovan.
"We have to go back to the late 1980s, when entire industries were being deregulated and dismantled, to find a quarter with a greater employment decline."
While there were 29,000 fewer jobs, there were only 4000 more unemployed.
That is because of a rise in the number of discouraged workers. To count as officially unemployed you need to be not just jobless but actively looking for work. The unemployment rate rose from 3.4 per cent in December to a still low 3.6 per cent.
"The desperate shortage of workers is beginning to ease a little but worker shortages are still the dominant theme in the labour market, not job shortages," Mr O'Donovan said.
The dollar dropped 1c to a three-month low against the US dollar of just over US77c.
And pricing on the money markets implies almost a 50:50 chance that the Reserve Bank could start easing interest rates next month. Before the data came out commentators saw almost no chance of that.
The labour market is one of the last parts of the economy to feel the effects of a slowdown or pick-up in growth.
"The fact that it has turned earlier suggests economic activity is slowing more rapidly than first thought," ANZ National Bank chief economist Cameron Bagrie said.
Goldman Sachs JBWere economist Shamubeel Eaqub said that while the labour market had been strong, 50 per cent of the jobs created in the past three years had been in the construction, finance, property and business services sectors, and an additional 30 per cent in retail and wholesale trade.
With a housing slump in full swing, he said, the prospect of 25,000 more job losses in the construction sector and a further 35,000 in other cyclical parts of the economy was a very real possibility.
