KEY POINTS:
The unemployment rate rose to a two-year high of 3.9 per cent in the June quarter, even as job numbers rose strongly, reversing an equally sharp decline the previous quarter.
The 26,000, or 1.2 per cent, rise in jobs to 2.17 million was seen by economists as limiting
the size of the Reserve Bank's next official rate cut in September to a quarter of a percentage point, rather than the half a point financial markets looked to be contemplating.
Releasing the data today, Statistics New Zealand (SNZ) said employment, which had fallen 27,000 in the March quarter, was at the second highest level recorded since the Household Labour Force Survey started in 1986.
The lift in the unemployment rate to 3.9 per cent, from 3.7 per cent the previous quarter, returned it to levels last seen in March 2006.
The seasonally adjusted labour force participation rate rose 0.9 percentage points to 68.6 per cent.
ASB economists Nick Tuffley and Jane Turner said employment was flat, on the basis of where it had ended up over the first six months of 2008.
The underlying labour market was starting to soften, and while not quite as weak as initially thought, it typically lagged economic growth and employment was likely to be weaker in the second half, they said.
Even though employment was much stronger than expected, the gradual rise in the unemployment rate was in line with the Reserve Bank's expectations of some slackening of the labour market.
But given today's robust figures, there was little on economic data grounds to prompt the Reserve Bank to cut the Official Cash Rate by 50 basis points next month, the ASB economists said.
The rationale for such a cut would have to rest on a deterioration in global credit market conditions.
Bank of New Zealand head of research Stephen Toplis said that going into today's release the market had appeared "hell-bent" on trying to price in a 50 basis point cut by the Reserve Bank.
"We thought this overdone and today's data has reinforced this perception. In fact, we would go so far as to say that there is a greater chance of the RBNZ not going in September than there is of it going 50."
Even though the labour market did show a marked softening, there was still some way to go before the unemployment rate hit the perceived non-inflationary level of 4.5 to 5 per cent, Mr Toplis said.
In its forecasts, BNZ struggled to get the rate much above those levels.
"This being so, there remains a real danger that the RBNZ can't, in the end, ease as much as both we and it have forecast," he said.
Despite that, he was expecting weakness in employment to be relatively widespread as the year wore on.
"We are not expecting mass redundancies but we do envisage an increasing number of companies reducing staff numbers via natural attrition."
- NZPA
