Economists question sharp drop in NZ unemployment rate

Economists including ASB's Nick Tuffley say it is unusual for the employment rate and the participation rate to move in opposite directions.

Economists are taking the sharp drop in New Zealand's unemployment rate with a grain of salt, even while saying employment data overall highlights a robust labour market where record inbound migration is helping curb wage inflation.

The country's unemployment rate fell to its lowest level in almost seven years, at 5.3 percent in the fourth quarter of 2015, surprising economists who had forecast an increase to 6.1 percent, from 6 percent in the third quarter. The result came from Statistics New Zealand's household labour force survey, which is regarded as a volatile series. The 0.7 percentage point drop in the unemployment rate was driven by an unexpected decline in the participation rate to 68.4 percent from 68.7 percent three months earlier. By contrast, employment grew 0.9 percent in the quarter for an annual gain of 1.3 percent.

Economists including ASB Bank's Nick Tuffley say it is unusual for the employment rate and the participation rate to move in opposite directions. With no clear reason for a fall in participation, it may reverse in the first quarter of 2016, nudging the unemployment rate up again, they suggest.

The HLFS, employment and labour cost data released today "paint a surprisingly inconsistent view of the labour market," Tuffley said. "While at first glance the Q4 labour data appear strong, that strength overstates the tightness of the labour market in our view." ASB had expected the pickup in employment, in line with growth in the economy and other indicators.

New Zealand's working age population has swelled because of record inbound net migration, rising 0.5 percent in the quarter for an annual expansion of 2.3 percent to 3.66 million people.

The data comes as business confidence surveys show firms are expecting to hire more staff in the coming year, while complaining about their ability to find workers and employee surveys show workers are more upbeat about their job prospects.

Business New Zealand's newly appointed chief executive Kirk Hope said his organisation expected to see strong jobs growth based on its manufacturing and services gauges through the period, and he would anticipate the unemployment rate to keep coming down.

"Employment growth is still relatively strong - it's finding the skills that's the challenge," Hope said.

Today's figures showed unemployment fell 11 percent in the quarter to 133,000 people, and was down 6.7 percent in the 2015 year. At the same time, more people stopped looking for work and the total number of jobless people - those both looking for work and unemployed and those not seeking jobs - rose to 259,400 from 257,600 a year earlier.

Bill Rosenberg, economist at the Council of Trade Unions, said migration appears to be driving the expanding work force, which could be making it more difficult for locals to get a job.

"We seem to be seeing an increasing number of people who are discouraged and are not looking for work anymore," Rosenberg said.

Annual employment growth was strongest in construction, which is being underpinned by Auckland housing activity and the Canterbury rebuild, but was more uneven across other sectors and in the regions, he said.

Construction lifted employment numbers 13 percent in 2015 to 232,000 in December. Of the country's other large sectors, jobs in retail trade, accommodation and food services shrank 0.4 percent to 357,600 in the year, professional, scientific, technical, admin and social services jobs rose 2.7 percent to 275,700, manufacturing rose 0.4 percent to 254,400 and agriculture, forestry and fishing fell 0.6 percent to 148,200.

Education and training jobs rose 3.8 percent in the year to 209,600 and health care and social assistance employment increased 0.3 percent to 258,700.