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New Zealand's unemployment rate fell from a 13-year high in the last three months of 2012 as people stopped looking for work and the participation rate shrank to its lowest level in almost nine years.
The unemployment rate fell 0.4 of a percentage point to 6.9 percent in the December quarter, as the number of people leaving the workforce fell faster than the number of jobs available, according to Statistics New Zealand's household labour force survey.
Economists were picking a headline rate of 7.1 percent in a Reuters survey.
The participation rate fell a record 1.2 percentage points to 67.2 percent, the lowest level since September 2004, while employment shrank 1 percent. Economists were expecting a participation rate of 68.5 percent and quarterly jobs growth of 0.4 percent.
The number of people not in the labour force climbed 3.8 percent in the quarter.
"We're seeing fewer people working and looking for work, and more people outside the labour force," industry and labour statistics manager Diane Ramsay says in a statement. "More younger people are solely in study and more older people are entering retirement."
The New Zealand dollar rose to 84.32 US cents from 84.20 US cents immediately before the report was released.
The figures come after the quarterly employment survey showed a pick up in total filled jobs and Treasury this week said it expects the labour market to show gradual signs of improvement as the Canterbury rebuild gathers momentum.
New Zealand's labour market has been struggling to convert hiring intentions into actual jobs as the economy slowly recovers, and the headline unemployment rate has been a bone of contention among economists who say it is out of synch with other data.
Forecasts have been surprised at the level of unemployment in the three quarters before today's release, which was slightly below the consensus.
Full-time employment grew 0.4 percent to 1.71 million in the quarter, while the number of part-time jobs plunged 6 percent to 486,000. Total jobs were down an annual 1.4 percent, while unemployment was up 6.8 percent from a year earlier.
Actual hours worked declined 0.1 percent to 73. 14 million hours, and was down an annual 1 percent.
The annual decline in jobs was led by a 19 percent plunge in self-employment, which has been falling from a peak in December 2011.
Otago had the lowest unemployment rate across the regions at 4.3 percent, with Southland at 4.6 percent and Canterbury at 4.9 percent. Northland had the highest rate at 9.5 percent. Auckland's rate improved to 7.2 percent, while Wellington's rose to 7.9 percent.
Youth aged 15 to 24 not in employment, education or training (NEET), a target demographic for the government, rose to 14.2 percent, the highest level since March 2011, though coming at the end of calendar year when programmes typically end.
The number of jobless people fell to 284,500 from 294,900 a quarter earlier, and was up from 261,300 at the end of 2011. The number of people discouraged from seeking working because they believe they lack the appropriate skills rose 2400 to 10,100 in the three month period.
Under-employment, which counts those people in part-time work wanting more hours, fell to 111,000 from 113,300 in the quarter, and was up from 105,100 a year earlier.
New Zealand's unemployment rate is now the 14th lowest among developed nations, below Canada's 7.2 percent and above Israel's 6.7 percent.