Unemployment is down to a better-than-expected 6.3 per cent, but bank economists say the job market remains soggy with little sign of a recovery this year.
Despite the lower unemployment rate, economists said the Reserve Bank was expected to keep the official cash rate on hold till late this year.
The unemployment rate surprised bank economists, who had expected it to hold at about 6.5 per cent in the December quarter.
But most other elements in the official jobs market report were weaker than expected, especially hours worked, which were down sharply.
Fulltime job numbers took a tumble for the first time in about two years and total job numbers rose only a modest 0.1 per cent because of a jump in part-time jobs.
However, Bank of New Zealand economists said it was hard to interpret the figures, given the impact of the Rugby World Cup and the Canterbury earthquakes on the job market. Job numbers have dropped more than 8 per cent in Canterbury in the past year, but are up more than 3 per cent for the rest of the country.
Overall, the job market still appeared to be in good shape and improving during the early stages of an economic recovery, with annual job growth of 1.6 per cent, which was "significant".
But, ANZ Bank warned, the unemployment rate had the potential to bounce back up in the March quarter as the economy remained "scratchy" and weak.
The underlying figures showed that, despite the rise in total job numbers, companies were laying off fulltime workers and this was reflected by a big increase in part-time work.
Youth unemployment remains the black spot in job figures, with more than 13 per cent of 15-to 24-year-olds not in work, study or training.
Total jobs growth was weak, up just 0.1 per cent in the December quarter or just 3000 more in work, only just enough to keep pace with population growth.
But total hours worked in the three months actually fell 1.4 per cent, with more people moving to part-time as fulltime jobs dried up.
Hours worked jumped up sharply in the September quarter leading into the Rugby World Cup. The December-quarter fall possibly reflected the hangover after the end of the World Cup, though that did not end until late October.
Total hours worked were down to their lowest level since March, which was not a good sign for economic growth in the quarter.
However, Bank of New Zealand said it was still expecting growth of 0.6 per cent for the December quarter.
Jobs growth is expected to remain weak throughout this year as global market uncertainty stops companies from hiring more staff, according to Infometrics economists.
Unemployment was expected to remain above 6 per cent this year, and that would mean people remained cautious about their spending, and the Reserve Bank would be able to keep the OCR on hold for the year, Infometrics said.
The 3 per cent lift in part-time jobs was in line with the uncertainty seen in the second half of last year, with firms hiring people on a flexible basis because of fears about the European debt crisis.
Council of Trade Unions economist Bill Rosenberg said while the fall in unemployment was welcome, the 6.3 per cent rate was still disturbing. During the 2009 Jobs Summit, there was national concern about an unemployment rate of 5.1 per cent.
The Government had put heavy reliance on the Rugby World Cup and the Canterbury rebuild to boost job numbers, but the tournament was over and rebuilding was just starting, with little to show for it in the national job figures.
New Zealand's unemployment rate has fallen but remains the 12th lowest among OECD countries.
Unemployment: 6.3 per cent, December quarter (6.6 per cent, Sept quarter) Unemployed: 152,000, down 7000 in December quarter Employed: 2.2 million, up 3000 or 0.1 per cent in December quarter
Hours worked: down 1.4 per cent in December quarter
Fulltime jobs fell 0.8 per cent in December quarter Part-time jobs rose 3 per cent in the quarter
Source: Statistics NZ -
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