New Zealand's dole queue has shrunk for the first time this year, raising hopes that employment might pick up sooner than expected.

Social Development and Employment Minister Paula Bennett said 1950 people signed up for the unemployment benefit in the week to October 2 - but more than 2000 went off the benefit, mostly into work.

The result was a net drop of 90 in the number of people on the dole, from a four-year peak of 60,750 on September 25 to 60,660 - the first weekly fall since last November.

A big factor in the improvement is the Government's job subsidies for young people, announced on August 2.

About 990 young people have been placed in work under the Job Ops scheme, which pays employers a $5000 subsidy to employ a young person for six months.

Another 141 have been placed under Community Max, which pays non-profit groups up to $13,437 also for six months.

Ms Bennett said the benefit numbers were likely to increase again when tertiary education classes ended next month.

Student Job Search was expecting 35,000 students to register this year.

"We are obviously celebrating very cautiously because it's just a week," she said. "It's far too early to be looking at this as a trend or saying it's going to continue to go down."

But Business NZ chief executive Phil O'Reilly said the figure tallied with other evidence that employment might be picking up much sooner than the September quarter of next year, when current economic forecasts predict unemployment will peak at 7.5 to 8 per cent.

"There's a good possibility of a permanent trend downwards from early next year," he said.

He said forecasts that employment would lag behind general economic growth were based on data from places such as Europe and Japan, where labour markets were much more rigid than in New Zealand.

A bigger proportion of Kiwi workers also worked in small businesses, which generally took on extra workers more quickly than larger, more mechanised businesses.

"If you're a small panelbeater and work starts to pick up, you have to bring someone on quickly because you haven't got any machinery, you've got human machinery," he said.

Council of Trade Unions secretary Peter Conway agreed that the signs were that unemployment would peak sooner than next September and at less than 8 per cent.

He and Mr O'Reilly noted there had been no large-scale closures in the last few months, although there was a risk that some businesses might be forced under by the strength of the dollar.

There may be a seasonal effect in the latest figures as meat and dairy processing and other seasonal work increased again after winter.

But some of the biggest declines in unemployment were in main cities, where seasonal work is least significant. In size order, Auckland, Otago/Southland, Canterbury, Taranaki, Wellington, Waikato and Nelson/Marlborough had declines.

Bay of Plenty, Manawatu/Wanganui, Gisborne/Hawkes Bay and Northland had increases in unemployment.

Numbers on the unemployment benefit declined from a postwar peak of 177,000 in 1993 to 17,710 in June last year, but rose almost four-fold since then as the world plunged into recession.