KEY POINTS:
The number of people employed dropped by 7000, 0.3 per cent, in the September quarter but the labour market remains very tight.
The number of unemployed also fell, by 2000, pulling the unemployment rate down to 3.5 per cent - the lowest since comparable records began 22 years ago - from 3.6 per cent in June, Statistics New Zealand said. It has been below 4 per cent for three years.
The apparent anomaly of employment and unemployment both falling arises because of a drop in the labour force participation rate. It fell to 68.3 per cent, the result of an 18,000 increase in the number of working-age people who are neither employed nor actively seeking work, which is a requirement of being counted as unemployed.
The participation rate remains high by historical standards. It tends to rise and fall with the demand for labour, ASB economist Daniel Wills said.
"When firms are hiring, people in the working age population will make themselves available for work. If jobs are harder to come by, the converse applies."
It was women who withdrew from the labour force during the quarter, especially those aged between 30 and 34; the male participation rate held steady.
The fall in employment follows two quarters in which it grew strongly - by 25,000 in March and 13,000 in June.
The number of people employed has grown 1.5 per cent over the past year but all the growth has been in part-timers; full-time employment is 0.3 per cent lower than it was a year ago.
The number of full-time jobs fell by 10,000 or 0.6 per cent in the latest quarter, partly offset by a 1.3 per cent rise in part-time employment.
The biggest fall of nearly 12,000 was in the construction sector but employment in some parts of the services sector fell as well. Agriculture, education and retailing posted the main gains.
Hours worked fell by 0.1 per cent. As economic output expanded during the quarter - by how much we don't know yet - that suggests some lift in labour productivity from what has become a very weak trend.
"All up we would characterise this household labour face survey outcome as a touch on the soft side, given that employment and hours worked shrank, implying economic activity stepped down a notch over the quarter after a robust first half to the year," Wills said.
ANZ National Bank chief economist Cameron Bagrie said responses to questions about employment intentions in the business sentiment survey suggested there was still an underlying demand for workers.
The unemployment rate was likely to remain low for some time, keeping upward pressure on wages, he said.
"Any softness in employment growth is likely to see workers withdraw from the labour market, helping to keep the unemployment rate low. This means that firms which are still looking to hire will continue to find it difficult to attract staff and this will help to keep wage inflation elevated for some time."
Though the unemployment rate was lower than the Reserve Bank had been expecting there was nothing in yesterday's numbers to affect its wait-and-see stance, Bagrie said.
Wills said the key question facing the bank was still whether the slowdown in the housing market and risks to global growth would allow the economy to absorb the boost to rural incomes and expansionary fiscal policy without generating unacceptable pressure on inflation.
On the job
* Unemployment fell to a 22-year low in September as the labour force contracted.
* Employment shrank too, after two quarters of strong growth.
* Main job losses were in the construction sector.
