Unemployment jumps to 6.8pc as dollar falls

New Zealand's jobless rate unexpectedly widened in the fourth quarter, sparking a sell-off in the kiwi dollar which dropped as much as half a cent on the release as the country's economic recovery struggles to take hold.

The jobless rate rose to 6.8 per cent in the fourth quarter, from 6.4 per cent three months earlier, according to Statistics New Zealand. The data showed New Zealand's participation rate weakened to 67.9 per cent.

The kiwi dollar fell as low as 77.16 US cents from 77.7 cents immediately before the release, and recently traded at 77.3 cents. Unemployment was expected to hold at 6.4 per cent in the latest quarter, with a participation rate of 68.3 per cent, according to a Reuters survey.

"The data looks genuinely weak, which is indicative of fragile market," said Mike Jones, strategist at Bank of New Zealand.

"I guess the negative surprises in the New Zealand economy continue, and the unemployment numbers are just another piece of data that will give the Reserve Bank more time to keep rates low."

The fourth-quarter Household Labour Force Survey continues the see-saw ride for the jobless rate, which was at 7 per cent a year ago, fell to 6 per cent in the first quarter 2010 and jumped back up to 6.9 per cent in the second quarter. Reserve Bank Governor Alan Bollard kept the official cash rate unchanged at 3 per cent last week, saying he needs to a "more robust" recovery before he tightens monetary policy.

Still, the bank is forecasting a return to growth this year after the economy narrowly avoided recession in 2010.

Traders are betting Bollard will hike the benchmark rate by 59 basis points this year, according to the overnight index swap curve.

More than a quarter of New Zealand firms intend to take on new staff over the next few months, according to a Hudson Recruitment survey last month.

The HLFS comes two days after government figures showed wages grew 0.6 per cent in the final three months of 2010, beating estimates, for an annual pace of 1.9 per cent, the fastest since the third quarter of 2009. Still the Quarterly Employment Survey showed filled jobs edged up just 0.1 per cent and were down 0.4 per cent on the year.

The labour force participation rate is now at the lowest level since the first quarter of 2008. Total people employed fell 0.5 per cent to 2.18 million while those out of work rose by 8,000, or 5.1 per cent, to 158,000. New Zealand's total working age population rose by 12,800, or 0.4 per cent, to 3.44 million in the final three months of 2010.

Part-time employment fell by 2.8 per cent in the latest quarter, while full-time employment rose by 0.3 per cent.

Goldman Sachs NZ economist Philip Borkin said at face value, today's labour force survey "was bad".

"However, part of it is likely to just be inter-quarter volatility, which has become the new norm for this survey," he said. "Nevertheless, the weak result is another piece of information that is likely to cement the Reserve Bank to the sidelines for the time being."

The fall in employment was driven entirely by part-timers (down 2.8 per cent quarter on quarter), while full-time employment rose 0.3 per cent.

"Stepping back and looking at the full suite of labour market statistics (wage growth, employment, hiring intentions, difficulty in finding labour etc), we continue to believe that the labour market has stabilised," said Borkin.

"However, what this survey suggests is that the improvement since that stabilisation has been relatively limited. Nevertheless, with business profitability on the mend and the massive bout of business sector deleveraging largely run its course, we continue to believe the labour market will gradually improve over 2011. "

Borkin said he was forecasting an unemployment rate at 6.1 per cent by year end.

ASB Bank economist Jane Turner said the decline in employment followed "a particularly choppy run of data in the Household Labour Force Survey" and the result was likely to be overstating the weakness in the labour market.

"Nonetheless, taking a look at the average rate of employment growth over the past two quarters, it is clear that momentum in the recovery has waned over the second half of 2010."

"Today's results are in keeping with the recent run of disappointing economic data, in particular the unexpected contraction in GDP over Q3," said Turner.

"Labour market data suggest that firms remain particularly cautious and reluctant to increase numbers amidst current economic uncertainty. Indeed, the solid growth in total hours worked over the past year points to growing labour demand, although businesses prefer to increase existing staff work load rather than increase the number of employees."

"With today's result adding to the run of underwhelming data, it is clear the economic recovery has been very patchy and struggled to keep traction over the second half of 2010. Nonetheless, there are clear signs that underlying labour demand is lifting, and is likely to flow through to increased employment over 2011 as business confidence recovers."

But for the time being, low and stimulatory interest rates were required to help the economic recovery gather momentum, and Turner said she did not expect the Reserve Bank to lift interest rates until September this year.

The jobless rate was highest in Northland, at 8.9 per cent, with the nation's lowest participation rate at just 62.7 per cent.

In Auckland, the unemployment rate was 7.8 per cent and the participation rate was 67.3 per cent.

New Zealand's unemployment rate is the 12th-lowest in the OECD.

- WITH NZ HERALD ONLINE