Jobs highlight faltering recovery

The number of people employed has fallen by 6000. Photo / Steven McNicholl

Jobs numbers for the June quarter were much weaker than expected, adding to the evidence the recovery is losing momentum and to the likelihood of a pause in interest rate rises later this year.

The unemployment rate reversed most of the March quarter's precipitous fall from 7.1 to 6 per cent, rebounding to 6.8 per cent. The market consensus had been 6.4 per cent.

The number of people employed fell by 6000 or 0.3 per cent, clawing back some of the March quarter's steep 1 per cent rise. The market had expected a further rise of 0.4 per cent.

The weak employment data came hard on the heels of another lurch lower in export dairy prices and continuing declines in net immigration, business confidence and bank lending to the business sector.

The dollar fell half a cent to US73c, while one-year wholesale rates dropped 10 basis points. The market now expects short-term interest rates to be 71 basis points higher this time next year - down from 81 points on Wednesday, according to Credit Suisse's swaps-based indicator.

The unemployment rate has swung wildly in recent quarters.

The normal pattern is for unemployment to rise in the March quarter and fall again in the June quarter.

That pattern has broken down this year, and the application of the normal seasonal adjustment algorithm has amplified the movements.

The household labour force survey recorded a raw, unadjusted rise of 1800 to 155,300 in the number of unemployed, following a fall of 5400 to 153,500 in the March quarter. Both movements are within the margin of error.

Seasonal adjustment magnified the movements to 19,000 more unemployed in the June quarter following a fall of 24,000 in the March quarter.

Statistics New Zealand's trend measure - an attempt to smooth out such perturbations and maximise the signal-to-noise ratio in the numbers - showed the unemployment rate unchanged at 6.7 per cent and down slightly from a peak of 6.8 per cent in the December 2010 quarter.

The rise in unemployment was an all-male affair (female unemployment fell) and was most marked among 20 to 24-year-olds.

Although the number of people working fell 0.3 per cent (seasonally adjusted) the fall was all in part-timers. Full-time employment rose 0.2 per cent.

ASB economist Jane Turner said that over the past year full-time employment showed a clear upward trend, while part-time employment had been trending down.

"This indicates that the recovery in employment demand over the coming year will be sustainable, given firms tend to turn to hiring part-time staff when they want the flexibility to change headcount at short notice," she said.

Hours worked rose 0.6 per cent in the quarter, making 1.3 per cent for the year. "While still pointing to growth in labour demand, the pace of growth remains relatively modest and suggests that the building momentum in economic activity is yet to completely translate to stronger employment demand," Turner said.

ASB now sees only a 60 per cent chance the Reserve Bank will raise the official cash rate again next month and believes it will then pause in the October and December reviews.

Deutsche Bank chief economist Darren Gibbs said that - taking into account the more positive numbers in Tuesday's quarterly employment survey, which surveys firms rather than households - his overall impression was that yesterday's figures probably painted an unduly negative picture of current trends in the labour market.

"Surveyed employment intentions remain quite positive, albeit off their highs, and the Department of Labour's vacancy series continues to show month-on-month improvement," Gibbs said.

Nevertheless the Reserve Bank had forecast employment to rise 0.5 per cent, when in fact it fell, and the unemployment rate to remain at 6 per cent, not jump to 6.8 per cent.

It was inevitable a "forecast miss" of that magnitude would increase pressure on the bank to suspend the process of returning the official cash rate to more normal levels, Gibbs said. He expects another OCR rise on September 16 to be the last this year.

BIG SWING

Unemployment rates:

* 6.8 per cent rate for June quarter.
* 6 per cent rate for March quarter.
* 7.1 per cent rate for December quarter.