Unemployment dropped to 4 per cent in the June quarter, official labour force data from Stats NZ shows.

Defying expectations that is a fall from the March quarter's 4.2 per cent.

But economists warn today's number needs to be read in the context of all the available labour market data.

Economists had picked a wide range in latest previews - up from last quarter's 4.2 per cent to between 5 per cent and 6.4 per cent.

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Stats NZ said the Covid effect appeared to have significantly dampened labour market activity which had impacted the unemployment number.

"About 650,000 people were away from their job, working fewer hours or less than they wanted, or were otherwise less active in the labour market in the June 2020 quarter due to reasons related to Covid-19 such as sickness or lockdown," Stats NZ said today.

To provide context Stats NZ has provided an extended unemployment figure which includes those who did not meet the classification for official unemployment reasons related to Covid-19.

To be categorised as unemployed, a person must:

• not have a job,
• be available to start work, and
• have been actively seeking work in the past four weeks or be due to start a new job in the next four weeks.

That figure was 4.6 per cent.

StatsNZ said that in the June 2020 quarter, 20,200 people were not working and said Covid-19-related reasons meant they were not looking or were not available to work but were otherwise meeting the requirements for being classified as unemployed.

This meant they were not in the labour force but may have been counted as unemployed in the absence of Covid-19 lockdown restrictions.

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"If so, this would have increased the number of unemployed people from 108,200 to 128,500, and the official unemployment rate from 3.9 per cent to a Covid-19 extended rate of 4.6 per cent [not seasonally adjusted]."

ASB senior economist Mike Jones says things like the labour market participation rate, underemployment and hours worked will be the key to understanding why the unemployment figure has landed where it did, after one of the weirdest quarters in New Zealand's economic history.

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The official unemployment number is distinct from more immediate but less comprehensive data like the weekly number of people on a Jobseeker Benefit.

There is a correlation between the two figures, but Jobseeker Benefit numbers don't catch people who are unemployed but not on a benefit.

Jobseeker Benefits do include people who may have some hours of work - but who wouldn't count as unemployed in the official stats.