A surprise rise in the number of people employed is being largely discounted by economists, as the unemployment rate hit a five-year high 4.6 per cent in the December quarter.
Releasing the Household Labour Force Survey for the last three months of 2008 today, Statistics New Zealand (SNZ) said unemployment increased by a seasonally adjusted 10,000, or 10.8 per cent, to 105,000. The last time the number of unemployed topped 100,000 was in September 2002.
The unemployment rate increased by 0.4 percentage points over the quarter and by 1.2 percentage points over the year. In the December 2007 quarter the rate had fallen to 3.4 per cent, the lowest since SNZ started the survey in 1986.
In the December quarter, employment increased by a seasonally adjusted 21,000, or 0.9 per cent, to 2.19 million - the highest level of employment recorded since the survey began.
Most of the growth came from part-time employment, which grew by 17,000, or 3.5 per cent, with full-time employment up 6000, or 0.3 per cent.
ASB economists Jane Turner and Nick Tuffley said there had been widely held expectations that the number employed would decline as the credit crunch kicked in, pushing New Zealand further into recession.
The employment figure was volatile from quarter to quarter, making it hard to get a good steer on what was happening.
"Our inclination is to discount the result, even if in doing so we are turning our back on one of the few positive bits of recent news," they said.
A 1.9 per cent fall in the total number of actual hours worked each week was more in line with indicators.
That figure perhaps suggested that rather than shedding head count, the number of hours worked was being scaled back, the ASB economists said.
Another figure reflecting an under-utilisation of labour was that 19 per cent of those employed part-time indicated a preference to work more hours in the latest quarter, up from 16.3 per cent in the September and June quarters.
"There is now clear evidence of labour hoarding over the past two quarters," The ASB economists said.
"However, the economic backdrop has changed even more sharply than many could imagine. Firms are now under pressure to reduce costs, and cutting head count would be the next option."
Westpac research economist Dominick Stephens said the shock increase in employment represented data volatility, and not a turnaround.
The 4.6 per cent rise in the unemployment rate was the best gauge of the labour market.
"As we head into 2009 we expect layoffs in depressed industries to intensify, while vacancies in labour-shortage industries dry up," Mr Stephens said.
He expected the unemployment rate to hit 6.4 per cent by the end of the year.
"Still, that represents a less severe rate of unemployment than New Zealand experienced in the early-1990s, because there is ample evidence that some firms are hoarding labour."
The data was no impediment to further cuts in official interest rates which Westpac continued to expect would be cut 50 basis points in March.
Deutsche Bank also expects a cut of 50 basis points, but ASB thinks a 100 basis point cut is more likely.