Wow! - economists reel at jobless stats fall

New Zealand's unemployment rate has fallen dramatically from 7.1 per cent to 6 per cent during the March 2010 quarter, Statistics New Zealand said today.

This is the first fall in the unemployment rate since the December 2007 quarter in the Household Labour Force Survey, which is based on a representative sample of 15,000 New Zealand households.

The number of people unemployed dropped by 25,000 during the quarter, while the number of people employed grew by 22,000.

ASB Bank economist Chris Tennent-Brown was one of many surprised at the strength shown in today's job figures.

"To summarise in one word WOW!" he said.

"The New Zealand labour market has turned. In the first quarter the number of people employed increased by 22,000," he said. The "unequivocally strong labour market data" had now opened the way for the Reserve Bank to begin removing stimulus and lift the Official Cash Rate (OCR)

"We expected that the labour market would turn during Q1, but not but not as impressively as the survey showed," said Tennent-Brown. "The 1.1 per cent drop in Q1 is the largest fall in the unemployment rate recorded since the survey began in March 1986, and the 1 per cent lift in the number of people employed is the strongest lift since June 2008's 1.2 per cent gain," he said.

"Bar an unexpectedly restrictive Budget on May 20, we see little standing in the way of the Reserve Bank increasing the OCR in June. The household sector had been one key area weighing on the NZ recovery."

Philip Borkin, economist at Goldman Sachs JBWere said he was "amazed" at the unemployment figures. "This morning's data clearly suggested the labour market was in a better position that first thought," he said.

"Not only has employment and hours worked turned the corner, but the unemployment rate fell sharply. While we still have concerns over the patchiness of the domestic economy, this (on top of Reserve Bank Governor Bollard's speech this morning) is difficult to ignore."

Borkin said he now expected the Reserve Bank to lift the OCR by 25 basis points (0.25 per cent) at the next Monetary Policy Statement on June 10.

"I'm thrilled to see the first drop in the unemployment rate in two years," says Social Development and Employment Minister Paula Bennett.

Bennett said there were now 2,177,000 New Zealanders employed, up by one per cent, "the magnitude of which was unexpected".

The number of unemployed young people has fallen by 6,500 over the last quarter to 66,300.

Unemployed Maori make up 13.6 per cent and Pacific island people account for 13.3 per cent of those who are officially unemployed.

"Clearly we must continue to concentrate on Maori and Pacific unemployment and our young," said Bennett.

She said New Zealand's 6 per cent unemployment rate compares to UK (7.8 per cent), Australia (5.3 per cent), Canada (8.2 per cent) and Ireland (13.1 per cent).

Khoon Goh, senior markets economist at the ANZ Bank took a more sceptical line over today's stats.

"The extreme volatility seen in recent quarters leaves us scratching our heads and raises many questions about the true state of the labour market," he said.

Forward indicators pointed to further improvement in employment ahead, which suggested the unemployment rates will continue to head lower, though Goh said he did not expect it to fall by the same amount seen in this latest quarter.

"Today's HLFS report surprised with a large fall in the unemployment rate. The 1.1 percentage point decline from 7.1 per cent to 6 per cent was the largest in the history of the survey," said Goh.

"Today's survey certainly raises many questions, and Statistics NZ did acknowledge that seasonal factors have played a more influential role than normal. Be that as it may, we have to take the data as it comes."

Statistics NZ manager of labour market statistics, Peter Gardiner said that typically in the March quarter, unemployment increased, since temporary employment along with with the Christmas and New Year period and seasonal agricultural activity declined.

"But this March quarter we have seen an unexpected fall in unemployment, particularly among young men, which is accentuated when seasonal influences are removed," he said.

The rise in employment during the March 2010 quarter followed a revised increase of 0.1 per cent in the December 2009 quarter. Employment rose for both men and women, primarily driven by a rise in full-time employment for men (up by 19,000). Part-time employment fell by 3,000 during the quarter.

In line with the rise in employment, actual hours worked increased by 1.7 per cent.

- NZHERALD