Job growth stalls as market peaks

By BRIAN FALLOW, Economics Editor

The labour market is coming off the boil, figures out yesterday suggest.

After a strong surge over the previous year, which pushed the unemployment rate to a 13-year low and wage inflation to around 3.5 per cent, growth has moderated and forward-looking indicators suggest pressure in the labour market will continue to ease.

The unemployment rate in the September quarter was unchanged at 5.2 per cent, Statistics New Zealand said. Employment growth slowed to 0.3 per cent.

The net increase of 6000 jobs mopped up the growth in the labour force (5000) and reduced the number of unemployed by 1000 to 100,000.

But the growth was all in part-time jobs, which increased by 10,000 while the number of full-time employees fell 4000.

Newspaper job advertisements, monitored by ANZ Bank, fell for the third month in a row in October, by 3 per cent.

ANZ chief economist David Drage said the fall was primarily in the three main centres, where it fell 4.5 per cent last month. "It may be a warning that the recovery seen in the local economy over the past six months is faltering," he said.

Other forward-looking indicators have softened as well. The sharp fall in business confidence since the September 11 attacks has already flowed through to weaker hiring intentions.

The latest quarterly survey of business opinion by the Institute of Economic Research recorded some easing in the proportion of firms saying they are finding it difficult to recruit skilled labour, although the level remains high.

Migration flows have turned around over the past six months, to a net inflow instead of the outflows of the previous three years.

But if the labour market cycle has peaked - and the indicators point consistently to that - it is at a level of tightness that is high by international and New Zealand historical standards.

With the unemployment rate at 13-year lows, it has cut the number of long-term unemployed - those who have been out of work six months or longer - from 37,900 a year ago to 28,200.

The number of people classified as underemployed (part-timers who would prefer to work more hours) has also fallen over the past two years.

At 5.2 per cent the unemployment rate compares with 7.1 per cent in Australia, the highest since mid-1999, and an OECD average of 6.4 per cent.

The increase in employment of 2.2 per cent over the past year, combined with wage growth of around 3.5 per cent a year, lower interest rates and lower petrol prices, has significantly boosted household spending power.

"We have come into this period of global weakness with tremendous momentum in the New Zealand economy," said National Bank chief economist John McDermott.

"While it is set to be more moderate growth from this point, the outlook still looks more favourable than for many countries."

Dr McDermott pointed to the 0.1 per cent increase in hours worked recorded in the household labour force survey as further evidence of a turning point.

A slowing would show up in less overtime before it flowed through to a cut in staff numbers.

"Nothing in these figures would be scary for the Reserve Bank," he said.

The markets are expecting Reserve Bank governor Don Brash to cut half a percentage point off interest rates on Wednesday.

"While there are times when the bank needs to demonstrate its independence and not deliver what the market expects, this is not one of those times," Dr McDermott said. "Confidence needs to be underpinned."

Mr Drage said that with skill shortages still widespread there was sufficient pressure in the labour market for wages growth to continue to accelerate, to around 4 per cent.

"But with the pressures starting to stabilise, after mounting over the past year, this won't stand in the way of a 50-basis-point cut next week."