KEY POINTS:
The risk of another interest rate hike has receded after the labour market softened in the September quarter.
Financial market pricing now puts the chances at about 20 per cent that Governor Alan Bollard will raise the official cash rate at the next opportunity, December 6.
The number
of people employed fell by 9000 or 0.4 per cent in the quarter, a decline wholly explained by a drop in female employment, especially part-timers.
The unemployment rate rose to 3.8 per cent from a record low of 3.6 per cent in the preceding quarter, Statistics New Zealand reported. That puts New Zealand fourth-equal, with the Netherlands, among developed countries.
The rise would have been larger but for a fall in the participation rate - the proportion of working-age people either employed or actively seeking work - from the June quarter's record high of 68.7 per cent to 68.3 per cent, still high by historical standards.
Despite an economic slowdown, the unemployment rate has been in the 3.6 to 4 per cent range for the past 2 years.
"A possible reason for this is that the labour market pretty much reached its limit when the economy was stronger - the remaining unemployed were effectively unemployable - and as the economy has weakened and workers have lost their jobs they have been scooped up by other employers," said First NZ Capital economist Jason Wong.
While the official statistics indicated very tight labour market conditions, surveys of businesses indicated that conditions had eased for the past year or so, he said.
In the mid-1990s there was a two-year lag between when firms first started to say it was getting easier to find labour and the unemployment rate beginning to rise. In the current cycle it is about 18 months since firms first found it easier to find labour.
While this pointed to the prospect of some relief on wage inflation, any moderation was likely to be gradual, Wong said.
Bank of New Zealand economist Craig Ebert doubts the labour market has weakened to the extent the latest quarter's figures suggest.
Much of it was likely to be a statistical correction to the "strangely strong" June quarter, when employment grew by 22,000 or 1 per cent. Averaging the two quarters still gives employment growth of 0.3 per cent.
While there had been a big slump in employers' reported hiring intentions earlier in the year, in the context of talk of recession, employment intentions had since clearly recovered. "Firms are very much back in the hunt for staff," Wong said.
ANZ National bank chief economist Cameron Bagrie said 12 months of slowing economic growth had done little to relieve capacity pressures.
"It is hard to go past the fact that the labour market remains tight and the unemployment rate remains low," he said. "And recent surveys are pointing towards improving sentiment from employers."
But Westpac chief economist Brendan O'Donovan said the same surveys were also saying that firms' profitability was under extreme pressure.
That would translate into fewer job opportunities and greater resistance on the part of employers to deliver high wage increases.
The details in the household labour force survey point to a two-speed economy.
The construction sector has created 23,900 jobs over the past year, business and financial services 18,5000 and health and community services 98,000, but jobs were shed from the manufacturing sector, down 13,600, and agriculture, down 5300.
Deutsche Bank chief economist Darren Gibbs said the question was whether employment growth would continue to be soft over the year ahead, clearing the way for lower interest rates in a year or so.
