Good new for jobs, bad for interest rates –

10/11/2005
Gyles Beckford – ReutersUnemployment has fallen to its lowest point since the Household Labour Force Survey began in 1986 with 2,093,000 New Zealanders now in employment.

New Zealand added a bigger than expected 26,000 new jobs in the third quarter, taking unemployment to its lowest level in 23 years and suggesting the tight labour market will increase pressure for a rise in interest rates.

The unemployment rate fell to 3.4 percent from a downwardly revised 3.6 percent in the previous quarter, official data issued on Thursday showed.

Tightness in the labour market, which has sparked wage growth and supported domestic demand, has been a factor in the Reserve Bank of New Zealand’s (RBNZ) hawkish stance on interest rates.

“Prior to the release, I had thought that we would’ve seen job losses as a reason for caution for the RBNZ, but there is probably going to be little to hold them back now,” said Goldman Sachs JBWere economist Shamubeel Eaqub.

New Zealand’s interest rates are the highest in the developed world. The central bank resumed tightening last month with a quarter-point rise in its benchmark rate to 7 percent, after it had been on hold for six months.

A 1.3 percent rise in employment was powered by growth in full-time jobs in the construction, services, education and finance sectors. That raised employment by 3.5 percent from a year earlier.

A Reuters poll had forecast a 0.4 percent rise in employment on the previous quarter with the unemployment rate staying steady at 3.7 percent.

$NZ Up, Bonds Steady

The New Zealand dollar jumped to US$0.6858/61 from US$0.6840/45 just before the data, while NZ government bond yields were little changed.

New Zealand’s unemployment rate has trended down since December 2002 and is the lowest among the 27 members of the Organisation for Economic Cooperation and Development, where the average rate is 6.5 percent.

The economy has added 72,000 jobs in the past year, with a record 68.2 percent of the population in the workforce, defying expectations that a slowing economy would ease constraints.

A business survey in September showed a net 43 percent of respondents said they were having trouble finding skilled staff and 23 percent unskilled staff.

The hawkish central bank said last month inflation pressures were not easing enough because of the rampant housing sector and consumer demand, as well as higher oil prices.

Inflation in the year through September was 3.4 percent, the highest in nearly five years and above the Reserve Bank’s target range of one to three percent.

Forecasters are divided on whether further rate rises are likely next month.

Eight of 15 economists in a November 4 Reuters poll expected no change to the benchmark rate at the next scheduled review on December 8, but the chances of a rate rise are put at 45 percent.