KEY POINTS:
The labour market remains as tight as a drum, with the unemployment rate falling to a record-equalling low of 3.6 per cent in the June quarter.
There was little in the Household Labour Force Survey to reassure a Reserve Bank looking for a slowdown and emerging slack in the economy.
The number of people employed grew by 14,000 - more than twice what the market expected - on top of the strong increase of 25,000 in the March quarter.
At the same time the supply side of the market tightened. The working age population (everyone over 15) grew a scant 7000 or 0.2 per cent, the smallest increase for six years, reflecting a net outflow of migrants.
The participation rate, which is the proportion of the working age population either employed or actively seeking work, rose to a record 68.8 per cent.
That met most of the extra demand for workers; the rest came from a 2000 fall, to 81,000, in the number of unemployed.
However, the strong employment growth in the first half of this year followed a weak second half of 2006.
Compared with a year ago employment has increased a more moderate 33,000 or 1.5 per cent. That is well off the 4.5 per cent pace of late 2004.
And just over half of the June quarter's employment growth was part-timers. That is also reflected in the fact that while employment grew 0.7 per cent, hours worked increased by only 0.3 per cent.
On an annual basis, employment increased 1.5 per cent but hours worked only 0.7 per cent.
This suggests employers have been "hoarding" labour, fearful that if they more accurately match staff numbers to their present requirements they will not be able to recruit the additional workers they need later.
"The fact that most of the employment growth continues to be driven by part-timers is perhaps a reflection of firms having to be a bit more flexible in accommodating new recruits," ANZ National Bank chief economist Cameron Bagrie said.
"Indeed the rise in the participation rate to a new record high suggests that people who would not normally be looking for work have been able to gain employment rather easily."
The participation rate among women rose from 61.9 to 62.2 per cent, the highest since this statistical series began in 1986.
That might be a result of Government policies like Working for Families, which were at least partly designed to encourage beneficiaries to return to the workforce and to lift female participation.
Most of the jobs growth occurred in the services sectors like retailing and business services. Manufacturing employment shrank.
The Bank of New Zealand's head of research, Stephen Toplis, said the tightness of the labour market was the single biggest problem facing the economy. Job security left people feeling "bullet-proof" and comfortable spending up large both on housing and through the retail sector and becoming less resistant to price rises, he said.
At the same time business had to cope with increasing wage bills, high staff turnover and output being constrained by the inability to find staff. These factors compressed profit margins and encouraged firms to raise their prices.
Toplis said yesterday's figures were evidence that the economy's starting point was more inflationary than the Reserve Bank thought.
Not only is the unemployment rate lower than the 3.8 per cent the bank forecast, but the June quarter alone had just delivered half of the employment growth it expects for the full year to March 2008.
ANZ's Bagrie agrees strength in the labour market will continue to be a source of inflationary pressure for some time.
"However it is unlikely to prompt the Reserve Bank to hike [the official cash rate] in September."
Surge in jobs
* June quarter sees 14,000 more jobs, on top of a surge in March.
* Unemployment falls to a record 3.6 per cent.
* Labour force participation hits a new high.
* Little sign yet of the cooling economy the Reserve Bank seeks.
