Jobs rise beats forecasts

By BRIAN FALLOW

The unexpected strength of jobs data out yesterday has reduced the chances of a further cut in interest rates by the Reserve Bank on September 4.

Employment grew 0.8 per cent in the June quarter, compared with an average quarterly increase of 0.6 per cent over the past four years and market expectations of a 0.3 per cent rise.

The unemployment rate, which had been expected to rise from the 5 per cent recorded in March, fell to 4.7 per cent, the lowest since December 1987.

Some of the decline is explained by unemployed 15 to 24-year-olds becoming students, who are not counted as being in the workforce.

The participation rate, which is the proportion of the working age population either employed or actively seeking work, continued to ease to 66.2 per cent from 66.3 per cent in March and a peak of 66.8 per cent in March last year.

Over the June year employment grew 2 per cent, up from 1.5 per cent in March, but this was a more moderate annual growth rate than at any time in the previous two years.

It represented 37,000 new jobs, enough to mop up a migration-swollen increase in the workforce and still reduce the ranks of the unemployed by 7000. More than 90 per cent of new jobs were full-time.

Economists and officials had expected the unemployment rate to rise, reflecting weak business confidence, uncertainty over the war in Iraq, the impact of the Sars virus and the threat of power shortages.

Their expectations of an official cash rate (OCR) cut next month are being reduced.

Coming on top of the wages growth reported by Statistics New Zealand on Tuesday, the employment growth pointed to strength in consumer spending heading into Christmas, said ASB chief economist Anthony Byett.

"We now expect the Reserve Bank to leave rates on hold in September."

Westpac chief economist Brendan O'Donovan said the employment and wage data combined with a resurgent housing market reduced the probability of an OCR cut next month, but a cut in October remained a reasonable chance if the dollar rose.

Bank of New Zealand economists said 90-day bank bill futures were sold off yesterday to levels which essentially discounted any chance of a rate cut in the near term.

"We would not go so far as to say that all bets are off for any further easing on the horizon. It seems more a case of the Reserve Bank starting to eye some sort of near-term plateau of its cash rate."

Deutsche Bank sees a 25 basis point rate cut next month as marginally more likely than not.

The working age population, defined as everyone over 15, increased by 65,000 over the year ended June, of which 34,000 came from net immigration. In the June quarter migrants contributed 3600 of the 15,500 increase.

Hours worked were down 0.5 per cent, with the household labour force survey finding fewer people working more than 40 hours a week.

Tuesday's quarterly employment survey recorded drops in paid hours especially in the accommodation and manufacturing sectors, consistent with the impact of Sars and electricity-related cutbacks.