Unemployment spike stokes talk of interest rate cuts
New Zealand's 13-year high unemployment rate has opened the door for the Reserve Bank to cut interest rates to help underpin growth in an economy recovering from the deepest recession in two decades.
The household labour force survey today showed the jobless rate unexpectedly rose half a percentage point to 7.3% in the September quarter.
Economists surveyed by Reuters were picking the headline rate to ease to 6.7% from 6.8%.
Markets are giving central bank governor Graeme Wheeler a 22% chance of cutting the official cash rate at the December monetary policy statement, according to the Overnight Index Swap curve, up from 12% yesterday.
The New Zealand dollar dropped to 81.93 US cents after the employment data, from 82.56 cents immediately before as the prospects for a rate cut grew.
"There's definitely a message in the HLFS – the economy is not doing as well as people thought," says Darren Gibbs, chief economist at Deutsche Bank.
"Rates are certainly not restrictive and may be stimulatory, but are they stimulatory enough?"
The Reserve Bank has kept the benchmark rate at 2.5% since cutting half a percentage point to shore up confidence after last year's February earthquake in Canterbury levelled much of the country's second-biggest city.
Former governor Alan Bollard had indicated he would lift the rate later that year, but shelved those plans after Europe's sovereign debt crisis intensified, stoking fears of another global financial meltdown.
The HLFS has shown rising unemployment for the past three quarters. The number of people employed fell 0.4 percent to 2.22 million in the second quarterly decline, while the participation rate was unchanged at 68.4 percent.
New Zealand's labour market has been struggling to recover from recession, with employers more keen on taking on part-timers and casual staff than hiring permanent full-timers.
Just today, Dynamic Solutions of Christchurch said it will shed 40-60 jobs as it winds down its contract manufacturing business.
That comes two days after Auckland manufacturer Rakon said it would cut up to 60 jobs as it shifts more work overseas.
Today's figures come after the quarterly employment survey showed total filled jobs rose 0.3% to a seasonally adjusted 1.715 million, bolstered by a pick-up in part-time workers and a decline in full-time equivalents to 1.35 million.
Mr Gibbs says the difference between the two surveys could be squared up, as the QES doesn't include self-employed people, while the HLFS does. The number of self-employed people dropped 8.1% in the year ended September 30.