A shocker of a jobs report has increased the odds of a cut in the official cash rate, economists say, but it's still not a sure thing.
The unemployment rate jumped half a percentage point to 7.3 per cent in the September quarter, a 13-year high.
Drill down and the numbers stay bad: The jump in the unemployment rate was not the result of a lot more people suddenly looking for work, the labour force participation rate was unchanged.
Full-time employment dropped even more than employment overall - by 13,000 and 8000 respectively.
Outside of Canterbury, employment fell by 20,000 or 1 per cent and the unemployment rate jumped from 6.8 per cent in June to 7.6 per cent.
Over the year ended September the number of unemployed people rose 19,000 or 12.5 per cent and more than half of the increase (10,000) was among the long-term unemployed - those who say they have being looking for work for more than a year.
The unemployment rate was much worse than the 6.7 per cent the market consensus and the Reserve Bank expected.
The New Zealand dollar immediately dropped 0.8c against the US dollar and wholesale interest rates fell four to five basis points across the curve.
ANZ economist Mark Smith said the markets were pricing an 80 per cent chance of a cut in the OCR by June next year, up from 60 per cent before the release.
"Were it not for the Christchurch rebuild, we would be calling 50 points of cuts," Smith said.
"But the rebuild effort is set to put huge strain on the economy, and the Reserve Bank will require more information on the implications for the pricing side of the economy before they are willing to cut."
Economists' eyebrows were raised by the drop in construction sector employment recorded in the quarter - down 4700 nationwide and 400 even in Canterbury.
That is at odds with other indicators, like building consents and cement production, pointing to a pickup in building activity.
Statistics NZ has warned that the household labour force survey (HLFS), which only surveys people in established households and not temporary accommodation, might not pick up much of the increase in construction work in Christchurch.
Economists pointed to inconsistencies between the HLFS, a survey of households, and Tuesday's quarterly employment survey (QES), which surveys firms. The HLFS recorded a 4 per cent drop in construction employment over the past year; the QES a 6.2 per cent increase.
Bank of New Zealand economist Doug Steel was surprised by the weakness of the Auckland numbers, with employment down 2 per cent on a year ago and the unemployment rate jumping to 8.6 per cent from 7.3 per cent in June.
"That is difficult to reconcile with what is occurring in the housing market. Can the power of low interest rates be that strong? Another reason to be a bit careful on moving them even lower," Steel said.
Westpac economist Felix Delbruck said the HLFS had a history of offering wild, false signals.
"Other labour market data we follow - Tuesday's quarterly employment survey, Westpac McDermott Miller employment confidence [a survey of households], businesses' employment intentions - are saying that things are weak, but not quite this weak," he said.
While it was clear the Reserve Bank would not consider raising the OCR any time soon, and there was a risk of an OCR cut, Delbruck said, it was more likely the OCR would remain firmly on hold.