Liam Dann: Will unemployment rise? The real clues to the economy's strength

Labour shortages likely kept the job market tight in the first quarter of 2021. NZME File Photo December 2019

Strong demand for workers likely kept the unemployment rate steady in the first quarter of 2021, economists say.

New labour Market data for the first quarter is released on Wednesday.

But while the top line numbers may be steady the real clues to the economy's strength will likely be in the details, economists say.

Pandemic uncertainties have ensured a mix of forecasts.

ASB economists are picking unemployment will fall slightly back to 4.8 per cent (from 4.9).

Westpac sees it holding at 4.9 per cent and ANZ is forecasting an uptick to 5.1 per cent.

"A key uncertainty is to what extent rising labour force participation rates may offset jobs growth, leaving unemployment higher," said ANZ senior economist Miles Workman.

"Feasible unemployment outcomes for Q1 range from 4.5 per cent-5.5 per cent, depending on what happens to participation."

Participation dropped sharply in the wake of Covid, he said.

This was likely a temporary factor that will be reversed in coming quarters.

A rebound would reflect that: "Fiscal support for households has eased, so people may need to re-enter the workforce to supplement the family's income."

Women were also disproportionately impacted by the pandemic, so we may see a large number rejoin the labour force, he said.

There was also optimism during the first quarter about the improving domestic and global economic outlook, which might encourage people to enter the labour force.

The NZ labour market had proved remarkably resilient throughout the pandemic, said ASB senior economist Jane Turner.

"The fall in employment over 2020 was much smaller than expected – one year on from the start of the pandemic we expect that total employment was only 0.4 per cent below year-ago levels," she said.

"As a result, the lift in the unemployment rate over 2020 was more muted than expected, and likely peaked at 5.3 per cent back in the September quarter."

Labour market conditions were uneven across sectors, and a skills mismatch may prevent marked falls in the unemployment rate over the coming year, Turner said.

Business surveys and anecdotes suggest employment demand is strong and most firms are desperate for new staff.

However, indicators also suggested new employment was heading sideways, which implied that firms are not finding the people they need.

"The good news for those with skills in demand is that we also expect to see a steady lift in wage growth over the coming year," she said.

"The inability to import labour from abroad and a cap on the number of NZers returning home due to MIQ constrains, suggest that firms have had to compete strongly for new hires domestically."

Westpac acting chief economist Michael Gordon said employment appeared to have held up better than expected through summer, when the absence of international tourists was most pressing.

"Recent data suggests that while the New Zealand economy did take a hit due to the absence of overseas tourists through the summer months, the jobs market has probably held up better than we expected, and may be starting to regain momentum."

- Labour market statistics will be published 10.45am on Wednesday