Unemployment rate falls to historic low

12.00pm

The unemployment rate plunged to 3.8 per cent in the September quarter -- the lowest rate since Statistics New Zealand began recording the figure 18 years ago.

SNZ said today when releasing the figures that the rate puts New Zealand at the second lowest in the OECD club of developed nations behind South Korea (on 3.7 per cent).

The 3.8 per cent rate was slightly better than economists' forecasts of 3.9 per cent and compares with 4.0 per cent in the June quarter.

Today's strong data may cause the Reserve Bank to rethink its decision last month to halt its tightening of monetary policy. It confirms the labour market has tightened again.

The Maori unemployment rate fell to 8.3 per cent from 8.8 per cent in the June quarter and 9.7 per cent a year earlier. The Pacific peoples rate fell to 7.7 per cent from 7.4 per cent in June but is higher than the 6.7 per cent a year ago. The pakeha jobless rate fell to just 2.6 per cent from 3.0 per cent in the June quarter.

The number of people unemployed dropped to 79,000 from 84,000 in the June quarter and from 91,000 in the September 2003 quarter.

The workforce participation rate rose to 67 per cent from 66.6 per cent in June and this too is an historic best.

More than 19,000 new jobs (net) were created in the quarter -- a 0.9 per cent growth in jobs. For the year, job growth was 2.9 per cent, or 56,000.

The workforce expanded by 15,000 over the quarter but the number of jobs created exceeded that. There was a net gain of only 1097 migrants in the quarter against 6970 in the September 2003 quarter.

All the new jobs created in the quarter were full-time with 12,000 of those going to females.

Key industries driving the growth in employment over the year are manufacturing, and the business and financial services industry.

Northland, Auckland, Canterbury and West Coast/Marlborough showed significant increases in employment while Waikato experienced a significant fall.

However, the jobless rate in Waikato was very low at 2.8 per cent. The West Coast/Marlborough region had the country's lowest rate of 1.9 per cent.

Northland's rate was the worst -- rising from 4.7 per cent to 5.1 per cent -- but even that is low by historic standards.

There was a 3.4 per cent rise in the total hours worked over the year.

Further confirming the tightening of the labour market, a survey out on hiring expectations today showed businesses had eased off from a five-year high but intentions remained near five-year highs.

BNZ economist Craig Ebert said he is now forecasting the unemployment rate to drop to 3.6 per cent early next year.

"If it wasn't for the much higher participation rate, the unemployment rate would have fallen much further," he said.

He said the labour market would be a lot tighter than the Reserve Bank was forecasting.

"It's very much a reminder of a very stretched economy, one where capacity constraints are getting worse, not better, and in that sense keeping the potential for inflation pressure right to the fore"

Deutsche Bank chief economists Ulf Schoefisch said that at these low levels of unemployment it would be increasingly difficult for the economy to grow at recent rates, simply because the labour is not there.

"As we have seen earlier in the week, despite this very tight labour market the wage rate movements have been comparatively muted, and that's ultimately what matters." HSBC economist Anthony Thompson saw no reason for the Reserve Bank to hike interest rates again.

"But whilst given a downside surprise as far as the unemployment rate and a more severe tightening in the labour market than expected, we don't think it will alter the RBNZ's course from steady rates now.

"We see employment essentially the lagging indicator of past strength in domestic demand, and we think the statement was so strong from (Rb Governor Allan ) Dr Bollard at the last rate increase that he seems very content to ride out a period now and await the greater impact of rate hikes that have already been implemented."

- NZPA