More in work but jobless rate stuck

JAMES WEIR
Last updated 07:04 08/05/2014

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A total of 83,000 more people are in work than a year ago, but unemployment remains stubbornly high at 6 per cent and wages are barely moving.

The unemployment rate in the March quarter is well above the level of 5.6 per cent expected by the Reserve Bank earlier this year and wages rises are less than expected.

Economists say the central bank may therefore lift the official cash rate next month, but then hit the pause button, possibly for many months, especially with the dollar still so high.

The 3.7 per cent lift in job numbers since the March quarter last year was the strongest seen for a decade, with about half of that in the building sector.

Annual jobs growth was probably among the best of any developed economy in the world, economists said, and pointed to economic growth of at least 1 per cent in the March quarter.

But unemployment remains stuck at 6 per cent when it had been expected to fall in figures out from Statistics NZ yesterday. New Zealand's unemployment rate is still 11th in the OECD and still higher than Australia's 5.9 per cent rate.

However, latest job market figures show "the economy is on fire", according to Bank of New Zealand economists, suggesting that the Reserve Bank needs to get interest rates up as soon as possible.

But with the New Zealand dollar still high, the bank may move the OCR up again next month and in July but then take a pause, possibly for a few months.

"A near term pause is looking increasingly likely," BNZ head of research Stephen Toplis said, as the central bank tried to hobble the high dollar.

Reserve Bank governor Graeme Wheeler said yesterday that the dollar was overvalued and the central bank may 'intervene" in the currency.

Meanwhile, construction jobs, especially in Canterbury, are a key factor in the strong growth in jobs. Total jobs nationally grew by another 22,000 in the March quarter.

But as jobs grew strongly, more people also said they were available for work, leaving unemployment at 6 per cent.

The participation rate is now up to a record level of 69.3 per cent. If the rate had stayed unchanged, unemployment would have fallen to about 5.5 per cent. That ample supply of workers is keeping a tight lid on wage rises, for now.

The Statistics NZ figures showed average private sector wages up 1.6 per cent in the past year, which was weaker than expected and just a fraction ahead of annual inflation at 1.5 per cent.

That low wage growth meant there was less urgency for the Reserve Bank to raisethe OCR with less underlying pressure on the job market.

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ASB Bank economists said wages growth remained "very subdued" but that was not surprising given the fair degree of slack that still remained in the labour market.

While job numbers were growing, that was being offset by strong participation and a rising population, especially with booming migration.

Green Party co-leader Metiria Turei said National was failing to deliver lower unemployment.

But Economic Development Minister Steven Joyce said the 83,000 increase in jobs showed that anyone "who calls this bad news is not really looking at the numbers".

- The Dominion Post

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