By Alex Tarrant and Bernard Hickey
New Zealand’s unemployment rate rose unexpectedly to 6.6% in the September quarter from 6.5% in the June quarter and jobs growth was less than half that forecast by economists.
Economists cited a slow rebuild in Christchurch that hit employment there and a drop in part time job employment as growth linked to the Rugby World Cup was weaker than expected.
The New Zealand dollar fell almost half a cent to 78 USc after the data and on concerns about the European debt crisis. It has fallen from 82 US c on Monday. Wholesale swap interest rates fell around 2 basis points as some in the market extended their expectations slightly about when the Reserve Bank would increase the Official Cash Rate (OCR).
Fixed mortgage rates have dropped around 40-50 basis points in the last week as banks passed on recent drops in wholesale swap rates. Most borrowers however are staying on floating or moving to floating rates, which are cheaper than fixed rates and tend to move with the OCR, which is not expected to be lifted until midway through next year.
Unemployment rose despite 0.2% growth in employment because more people joined the labour force over the three months, particularly as those not previously seeking work began actively looking for it.
The number of people employed in the September quarter rose by 5,000, or 0.2%, to 2,218,000 from June, Stats NZ said. Excluding the Canterbury region, nationwide employment would have risen 1% over the quarter, Stats NZ said. The number of unemployed rose by 3,000 to 157,000 over the quarter.
Economists had been expecting the unemployment rate to drop to 6.4% over the quarter, and for employment to rise 0.6%.
The labour force participation rate – those in the working age population employed or looking for work (unemployed) – rose 0.1 percentage points to 68.4% in the September quarter from June. Those not in the labour force fell 2,000 to 1,095,000.
The September 2011 quarter unemployment rate of 6.6% compared with a rate of 6.4% in September 2010, and 6.5% in September 2009.
“In the September 2011 quarter, the labour force grew, with increases in both the number of people employed and the number of people unemployed,” Stats NZ industry and labour statistics manager Diane Ramsay said.
“The growth in employment reflects a rise in full-time employment, while part-time employment dropped slightly over the quarter,” Ramsay said.
There were different labour market movements for men and women over the quarter, Stats NZ said.
The number of men in employment rose, and the number of men in unemployment fell. However, the number of women in employment fell, while the number of women in unemployment rose, Stats NZ said.
Canterbury
In Canterbury, unadjusted figures show the unemployment rate in the region was 5.5% in the September 2011 quarter, compared to 4.8% in September 2010.
"The Canterbury labour market continues to move differently from the national labour market. While nationally employment grew by 1.1% over the September 2011 year, the number of people employed in the Canterbury region has fallen by 8.0%," Stats NZ said.
Economist reaction:
ASB Economist Jane Turner said the job losses in Canterbury were largely concentrated in the retail and hospitality sectors because of the destruction of the central business district and the closure of many hotels.
Beyond the declines in Christchurch, the rest of the country continued to perform well, suggesting the underlying economic recovery remains in place. Growth in full-time employment led the increase, while hours worked grew a robust 1% over the quarter, both indications that underlying demand for labour continues to improve.
For the RBNZ, there are some encouraging signs within the Q3 survey despite the disappointing headline. We continue to expect the RBNZ to lift the OCR in March. However, for the time being, the European sovereign debt crisis remains the main focus for the RBNZ. The ongoing political drama in Europe sees the risks increasingly skewed to a later and more gradual tightening cycle.
Westpac Economist Dominick Stephens said the data supported his view the New Zealand economy had just gone through a soft patch.
This supports our view that the New Zealand economy has endured a soft patch through mid-2011, as cooling general domestic activity has not yet been replaced by Christchurch reconstruction. This will further reduce short-term pressure on inflation, meaning the Reserve Bank can delay OCR hikes beyond the March start date it previously indicated.
We had been expecting evidence of temporary hiring for the Rugby World Cup. The drop in part-time employment actually denies support to this hypothesis. However, actual hours worked jumped 1% while usual hours worked fell 0.2%, perhaps suggesting that existing staff worked longer hours during the cup boost (although this could also be statistical noise).
HSBC Economist Paul Bloxham said employment tended to lag economic activity and there was still more upward momentum in the pipeline.
Besides, 2H also gets a kick from the Rugby and the rebuild of Canterbury is yet to come. Nonetheless, last week’s low CPI and today’s softer employment numbers do mean there may be less rush for the RBNZ to normalise policy, particularly given heightened global risks.
Employment was weaker than expected, although hours worked have continued to rise. We still see that a recovery is in progress. Our central view has been that RBNZ would hike before year-end, but these data and heightened global risks suggest the risk is that they may choose to sit still for longer.
The chart below shows unadjusted figures:
Unemployment
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(Updates with Canterbury figures, Westpac, HSBC and ASB economists reactions, market reaction)
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