KEY POINTS:
Unemployment has dropped to a 22-year low of 3.4 per cent, which economists expect to keep upward pressure on wages and make the Reserve Bank wary of cutting interest rates.
Yesterday's household labour force survey was strong across the board.
The number of people employed grew by 23,000 or 1.1 per cent seasonally adjusted in the December quarter.
All of the increase was in full-time jobs.
And the participation rate - the proportion of people over 15 who are either working or actively seeking work - jumped 0.5 percentage points to a record 68.8 per cent.
Very strong labour market conditions were keeping consumer confidence relatively resilient, Goldman Sachs JBWere economist Shamubeel Eaqub said, at a time when consumers were facing a sharply slowing housing market, very high mortgage rates, rising petrol prices and turbulent financial markets.
The December quarter's strong jobs growth followed an unexpected 0.3 per cent contraction in the September quarter. Averaging the two quarters out, however, still gives a respectable increase of 0.4 per cent a quarter.
"That is sufficiently strong to ensure the unemployment rate will remain very low for a very long time," said Bank of New Zealand economist Craig Ebert.
"That's because the potential supply of labour is simply drying up. The participation rate is already at a record high and net migration is very weak. Both anecdotal and business surveys suggest there is still a huge unfulfilled demand for staff. It's going to take a long time to clear this."
Statistics New Zealand reported this week that the net population gain from migration had dwindled to just 20 people in December and that wages were growing at their fastest rate since comparable records began.
Deutsche Bank chief economist Darren Gibbs said the combination of strong wage growth and a rising cost of living provided a powerful incentive for people to enter the workforce.
In the December quarter a net 21,000 people joined the labour force, entirely explained by an increase in the number of women working. The unemployment rate has been under 4 per cent for 3 1/2 years and a 3.4 per cent unemployment rate is the fifth lowest among developed countries. Ebert said yesterday's figures would provide no solace to a Reserve Bank that was already up against it in its fight against inflation.
But ASB chief economist Nick Tuffley said that from an inflation perspective the saving grace in the employment numbers was the continued elasticity of labour participation: people were moving in and out of the labour force in line with fluctuations in the demand for labour.
This makes the low unemployment rate a bit less relevant, and less scary, as an indicator of how much spare capacity there is in the economy.
"We don't expect the Reserve Bank to lift rates, given the continued slowing in household spending growth, the growing threat from drought and the US economic outlook, which has been lurching from bad to worse recently.
Nevertheless the data reinforces our view that it will not be cutting the official cash rate this year," Tuffley said.
While the jobs growth was broadly based it was particularly strong in the wholesale and retail trade sector and in business and financial services.
That was puzzling, Eaqub said, in light of evidence of retail retrenchment, a sharply slowing housing market and a spate of finance company failures.
A rebound in construction jobs only partly replaced the previous quarter's falls. The construction sector employs 5 per cent fewer people than a year ago.
Job pressure
* The unemployment rate dropped to 3.4 per cent in December from 3.5 per cent.
* It is the lowest since comparable records began 22 years ago.
* It continues the recent trend where despite an ageing population and the loss of people to Australia the workforce is growing because more and more women are working.
* But labour supply is not keeping pace with demand, and wages are rising at their fastest pace for years
