Startling data early test for Reserve Bank governor

The worst jobless rate so far this millennium only adds to the evidence that the economy has lost momentum since mid-year.

Barometers of activity in the manufacturing and services sectors are in contraction territory. Truck movements tell a similar story.

And other labour market data have also been soft, such as job ads and hiring intentions.

But not this soft.

There are some grounds to apply a bit of a credibility discount to the numbers revealed yesterday.

The household labour force survey has whipped around from quarter to quarter in the past - though more so in 2010 than lately and two weak quarters in a row cannot easily be dismissed as statistical noise.

So faced with a jobless rate of 7.3 per cent, an inflation rate of just 0.8 per cent, an overvalued currency and softer terms of trade, why wouldn't Reserve Bank governor Graeme Wheeler cut the official cash rate next month?

Two words: Auckland and Christchurch.

Auckland house prices, already high by any historical metric, rose 9.2 per cent over the past year.

With mortgage rates already at multi-decade if not all-time lows and memories of the mid-2000s fever fresh, that is ominous. And Wheeler has a mandate to watch asset prices as well as consumer price inflation.

The other factor is uncertainty about how the huge, but localised, stimulus of rebuilding our second-largest city will affect the broader economy, both in terms of activity and prices, over the next year or two - the period the bank has to focus on, rather than the past.

So far Wheeler has given every indication of being old-school and conservative about the central banker's task.

But that is a hypothesis and it is being put to a test sooner than expected.