KEY POINTS:
Labour market data due this week are expected to show rising unemployment but wages and salaries still growing strongly.
The March quarter household labour force survey, published three months ago, was widely seen as a shocker. It recorded a drop of 29,000, or 1.3 per cent, in the
number employed, the steepest quarterly fall for 20 years.
Westpac chief economist Brendan O'Donovan says that when the June quarter numbers are released on Thursday, they will be scrutinised to see if the March tally of jobs lost was a "rogue" number, subsequently reversed, or the start of something big.
"We think it was a bit of both so we predict a very modest rebound of 0.2 per cent employment growth."
But that would still mean employment shrank 1.1 per cent in the first half of the year.
The market consensus is even softer - 0.1 per cent employment growth in the June quarter.
The steep drop in employment in the March quarter had only a modest effect on the unemployment rate, pushing it from 3.4 to 3.6 per cent.
The bigger change was to the participation rate, the proportion of working age people (everyone over 15) working or seeking work.
The participation rate dropped from 68.6 to 67.7 per cent, representing a jump of 35,000 in the number of working-aged people classified as not in the labour force and therefore not officially unemployed.
After such a steep drop, economists are not expecting any further decline in the June quarter, and are forecasting the unemployment rate to rise to 3.8 per cent, an 18-month high.
The Reserve Bank's June monetary policy statement raised some eyebrows by projecting the unemployment rate to climb to 6 per cent over the next three years.
But ANZ National Bank chief economist Cameron Bagrie believes it could easily go that high.
The National Bank's monthly survey of business sentiment has shown a steady decline in employment intentions since late last year.
And although historically weak employment growth has been accompanied by a drop in the participation rate, as potential workers get discouraged and withdraw from the labour market, Bagrie suspects that effect may be weaker this time.
From talking to the bank's clients around the country, he has received a steady stream of anecdotes suggesting the supply of labour had jumped, with people who are a family's second income earner looking for work.
"We are seeing a lot of pressure on household budgets. The price of necessities has skyrocketed and debt servicing costs have marched ever higher."
Research by the Reserve Bank of Australia suggested it was mainly the level of indebtedness which had an impact on people's decision to work rather than the other way around, Bagrie said.
O'Donovan expects the participation rate to fall to 66.8 per cent by the end of next year, equating to roughly 60,000 fewer workers available.
But he points to another factor - the common labour market with Australia - which can act as a relief valve.
"So long as Australia's economy remains strong, unemployment in New Zealand will be limited."
Even the lucky country, however, is not immune from the global slowdown. Australian retail sales have just recorded their steepest decline in six years.
The Reserve Bank is relying on a weak labour market to take the heat out of wage inflation and reduce the risk that higher petrol and food prices will spill over into sustained and generalised inflation.
Lately whenever Governor Alan Bollard comments on monetary policy, he warns of the necessity of "inflation expectations remaining anchored". That is central bank jargon for avoiding a return to the kind of cost-plus thinking and wage-price spiral which turned the oil shocks of the 1970s into the damaging "stagflation" of the 80s.
The market expects wages data out today to record a 0.8 per cent rise in private sector ordinary-time wage rates in the June quarter, which would push the annual rate of wage inflation by that measure to 3.5 per cent, from 3.4 per cent in March.
LOOKING AHEAD
Labour market gauges this week are expected to show:
* The economy has clawed back only a fraction of the March quarter's job losses.
* The unemployment rate has risen to 3.8 per cent.
* Wage inflation still has momentum.