NZ jobless rate tumbles to 6% in biggest decline on record; kiwi jumps

Thursday 6th May 2010

New Zealand’s unemployment rate unexpectedly tumbled in the first quarter, suggesting that firms are becoming more willing to take on workers and offering hope of a quicker recovery for the fragile domestic economy.

The jobless rate dropped to 6% in the first three months of the year, from a revised 7.1% level in the previous quarter, according to Statistics New Zealand.

The 1.1 percentage point drop was the largest since the series began in 1986, it said.

The number of people employed rose 1% to 2.18 million.

Economists had expected the jobless rate to hold at 7.3% in the latest quarter and employment growth also exceeded expectations at 1% versus a 0.2% increase predicted in a Reuters survey.

A sturdier jobs market may signal a revival in the domestic sector, which Reserve Bank Governor Alan Bollard today described as enjoying only a “fragile” recovery.

Philip Borkin, an economist at Goldman Sachs JBWere, said the result was "difficult to ignore."

"We now expect the RBNZ to lift the OCR by 25bps at the June Monetary Policy Statement," he said. "Today’s data clearly suggests the labour market is in a better position than first thought. Not only has employment and hours worked turned the corner, but the unemployment rate fell sharply."

“The trend is clearly that we’re seeing a return to net gains in employment,” said Khoon Goh, senior markets economist at ANZ New Zealand.

While volatility in the jobless figures means the numbers must be taken with a grain of salt, they “probably indicate that the big rise in unemployment in previous quarters was overdone.”

The participation rate held unchanged at 68.1%, as expected.

The New Zealand dollar climbed to 72.63 US cents after the figures were released, having jumped earlier in the day after Bollard said in a speech that he is broadly in sync with markets on the timing of increases to the official cash rate.

Prior to notes of his speech being released at 10 am, the kiwi was trading at 71.79 US cents, meaning it has surged almost 1 US cent across the two events.

The kiwi dollar rose above 80 Australian cents from 79.18 cents before Bollard’s speech and the employment data. Australia’s central bank, which raised its benchmark rate to 4.5% this week, signaled that borrowing costs are now at about neutral levels, reducing the need for further steep increases.

Australia, the biggest market for New Zealand exports and largest source of tourists, was among the first nations in the world to begin tightening monetary policy last October.

Statistics New Zealand said the seasonally adjusted decline of 25,000 in the number of unemployed last quarter was caused by “an atypical fall in the number of people unemployed, particularly among young males.”

“Usually, in the March quarter, temporary employment associated with the Christmas and New Year period and seasonal agricultural activity declines,” the government statistician said.

Businesswire.co.nz

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