Jobs data shock: Unemployment falls to 4.9 per cent

New Zealand's official unemployment dropped to 4.9 per cent in the December quarter - from 5.3 per cent.

Economists had expected a rise to around 5.6 per cent.

However they had warned that markets would be watching for a better than expected result which would put more upward pressure on interest rates.

The Kiwi dollar rallied as high as US71.93c, from US71.65c, on the news.

"We've seen a sharp fall in the number of people out of work, or wanting more hours to work...today's report was truly remarkable," Kiwibank's chief economist Jarrod Kerr said.

ASB economists said they were "gobsmacked" by the data and said the employment figures were "astonishingly strong".

Last quarter's unemployment rate of 5.3 per cent followed the largest increase observed in a single quarter since the series began in 1986.

The seasonally adjusted number of unemployed people fell by 10,000 in the December 2020 quarter, to 141,000.

The decrease was split evenly between men and women – the number for both fell by 5,000.

Despite this quarterly fall, the number of unemployed people is still 25,000 higher than it was a year ago, increasing from 116,000 in the December 2019 quarter (a rise of 21.9 per cent).

The annual increase was 15,000 for women and 11,000 for men.

The number of people not in the labour force (NILF) fell by 3,000 over the quarter.

The seasonally adjusted number of employed people rose by 17,000 over the December 2020 quarter.

This follows falls in the previous two quarters of the household labour force survey (HLFS), by 7,000 in the June 2020 quarter, and 19,000 in the September 2020 quarter.

Economists have also warned that data could be noisy due to conflicting impacts of Covid-19 such as closed borders restricting immigration.

But news that it has fallen back towards pre-Covid levels will still be viewed as a shock.

Prior to the pandemic the unemployment rate was 4.1 per cent.

Kiwibank said the rate was much lower than its forecast of 5.4 per cent.

"A shallower peak in unemployment means we will have less economic scarring. And the sharp bounceback in hours worked means we will see higher than expected income and consumption across the economy," Kiwibank's Kerr said.

The construction industry employed an extra 13,200 people in the quarter.

"This is precisely what we want to see. This is a fantastic read," Kiwibank said.

"When considered against the rampant housing market, the Reserve Bank of NZ has little choice but to keep the cash rate unchanged (at 0.25 per cent), and do more to restrain the exuberance in housing market," Kiwibank said.

The Household Labour Force Survey has provided the official unemployment figure since 1986, polls 15,000 households (about 30,000 people) across 13 weeks to generate an average for the quarter - rather than a set point in time.

To be categorised as unemployed by Stats NZ, a person must:

• Not have a job.
• Be available to start work.
• Have been actively seeking work in the past four weeks or be due to start a new job in the next four weeks.