Jobless rate rise shocks markets, puts back rate rises
A shock spike in New Zealand's unemployment rate to 7.3 percent pushed the New Zealand dollar down and caused economists to back off predictions of interest rate hikes.
The rate for the December quarter released by Statistics New Zealand is up from 6.5 percent in the September quarter and is higher than the 6.8 percent economists were calling.
"Importantly, the RBNZ was looking for an unemployment rate of just 6.6 percent and a peak of only 6.7 percent. Clearly this prediction has been blown out of the water," BNZ economists said.
Yet BNZ said the data was consistent with a recovering economy. A net 2000 people lost their jobs in the December quarter compared to an average of 17,000 a quarter over the previous nine months.
An unexpected rise in the labour force participation rate helped boost the number of job seekers. The labour force participation rate increased by 0.1 percentage points to 68.1 percent during the latest quarter.
Strong migration flows were bolstering the number of people in the labour force and the participation rate was high for a recession, BNZ said.
The New Zealand dollar fell more than a US cent to US69.65c and interest rates fell on wholesale money markets, which feed into mortgage rates.
A hike in the official cash rate in April was a maybe before the data but there was little chance of it after it.
"The weakness in [the]data raises the real possibility that the RBNZ waits beyond June to begin the tightening cycle," said Philip Borkin, economist at Goldman Sachs JBWere.
The increase in unemployment was particularly marked among youth, with the unemployment rate for 15 to 24 year olds rising 6.4 percentage points to reach 18.4 percent.
The differences among ethnic groups was stark. The unemployment rate for Maori is 15.4 percent, for Pacific people it is 14 percent, while just 4.6 percent of the European ethnic group were unemployed.
The Household Labour Force Survey showed those people officially without jobs jumped 18,000 to 168,000. This was double the Labour Department forecast of a 9000 increase.
Deutsche Bank said employment was essentially stable in the fourth quarter.
The number of people with jobs dropped by 2000 or 0.1 percent during the latest quarter, compared with a 16,000 decline in the previous quarter.
ASB said the variables which go into the unemployment rate calculation, combined with seasonal factors could lead to surprises in the headline unemployment rate.
"It is important to highlight the stabilisation in the number of people working. A total of 2.152 million people are employed in New Zealand -- only 2000 less than in the previous quarter.
"The next step is for the economy to start creating jobs, and we expect this to start to happen over the course of 2010."