KEY POINTS:
Borrowers are unlikely to take much joy from second-quarter employment data this week, even though it is expected to reveal a strong labour market.
Economists expect the numbers of unemployed to hover around 20-year lows, and Westpac Bank economists expect the rate to fall to 3.5 per cent from 3.8 in the first quarter ended March 31.
The Reserve Bank, which last month raised the official cash rate by 25 basis points to 8.25 per cent, said that the four successive rate hikes would be sufficient to contain inflation, but highlighted the tight labour market as a concern, meaning that high interest rates would be around for some time yet.
ASB Bank chief economist Nick Tuffley said low unemployment was undoubtedly good news, but that did not mean it was good news for the Reserve Bank and its inflation focus.
Unemployment has reached a plateau at just below 4 per cent and the Reserve Bank itself expects a rate of 3.8 per cent over the second quarter.
"It should come as no surprise that the economy did reasonably well through the second quarter," said Darren Gibbs, chief economist at Deutsche Bank NZ.
But, he said, the Reserve Bank was unlikely to focus closely on Thursday's release because of the time lag between the end of the second quarter and the July 26 rate hike.
Gibbs said that while the release would be closely watched, volatility in US equity and credit markets was causing the most concern to local markets.
Tuffley said the labour market should remain tight into next year, but that the Reserve Bank would be more attuned to the real estate market.
"They do want to see that housing market, and the associated lending, slow, which a lot of indicators and anecdotes suggest will happen, but the other area is the capacity constraints," he said.
Westpac expected strong employment growth of 0.7 per cent, quarter on quarter, and for annual wage growth to maintain its recent 3 per cent pace.
"The New Zealand economy had a great six months in the first half of 2007," the bank said.
"Commodity prices boomed, consumers opened their wallets, the housing market was buoyant, and economic growth was good."
Westpac also expected second quarter labour market surveys, due on Monday, to reflect the resurgent economy.
