KEY POINTS:
Employment growth is slowing, but the labour market remains tight.
The unemployment rate fell to 3.7 per cent in the December quarter, indicating that pressure on wages will remain firm.
The household labour force survey, issued yesterday, showed a drop of 0.1 per cent in the number of people employed, the second quarter in a row employment has dropped.
But the decline of 2000 in the December quarter and even the cumulative fall of 12,000 for the second half of last year are not statistically significant and do not necessarily herald a new downward employment trend.
That is because although Statistics New Zealand surveys a large sample of 15,000 households - about 30,000 adults - its figure for the total number of people employed has a margin of error of 21,600 or almost 1 per cent either way.
Employment was up 30,000, or 1.4 per cent, on a year ago - the slowest rate of growth for 5 1/2 years.
The number of unemployed also fell, by 1000 to 82,000.
The apparent anomaly of employment and unemployment both falling is explained by a drop in the labour force participation rate.
This is the proportion of the working age population - everyone over 15 - employed or seeking work and available to start work.
The participation rate fell to 67.9 per cent from 68.2 per cent in September and a peak of 68.5 per cent in June.
The decline in the participation rate reflected two things, Statistics New Zealand said.
One was a steady increase of 13,500 or 0.4 per cent in the working-age population, of which a third was the result of immigration.
The other was a jump of 13,000 - 95 per cent of them women - in the number of people not in the labour force.
All the fall in employment is explained by a drop in female full-time employment.
Another sign the labour market may be weakening is a rise in under-employment - the proportion of part-timers who want to work longer hours - which rose to 21 per cent, the highest in three years.
But even if the below-par economic growth of the past two years is now taking its toll on the labour market, economists say the market remains very tight.
The unemployment figure is the second lowest on record and the fourth lowest among developed countries. It has been below 4 per cent for 2 1/2 years.
First NZ Capital economist Jason Wong said: "A tight labour market remains a significant constraint on growth and is one reason we project only a shallow sort of recovery over the next year."
Despite a sluggish economy, it would keep the pressure on wage inflation, although there would be some relief from lower consumer price inflation.
Deutsche Bank chief economist Darren Gibbs said a pick-up in hiring intentions in business sentiment surveys suggested employment growth had now resumed.
"This is problematic for the Reserve Bank's medium-term inflation projections, especially with Monday's labour cost data highlighting that wage and salary growth is already at cyclically high levels due to past labour market tightness."
The money market is pricing an 82 per cent chance the official cash rate will rise on March 8, according to Credit Suisse's swaps-based indicator.
Monday's quarterly employment survey, which surveys firms rather than households, showed an increase of 31,000 jobs in the quarter. Economists said this was an increase of about 0.3 per cent, making 1.8 per cent for the year.
