Thursday, 8th May, 2008

New Zealand: Record decline in employment
Dollar falls, interest rate cut tipped

LATEST: In the first three months of the year the seasonably adjusted number of people employed dropped by 29,000, or 1.3 per cent, to 2.14 million - the largest percentage decline in employment in 19 years.

The figure takes employment back to the levels of early 2007, and goes against economists' forecasts that job numbers would hold steady.

The New Zealand dollar fell heavily on the news on expectations that the Reserve Bank will be forced to cut interest rates sooner rather than at the end of the year as signalled earlier. It dropped in minutes to US77.30c from US78.19c.

The employment fall is from a record high in the December quarter, when the 3.4 per cent unemployment rate was the lowest since the Household Labour Force Survey started in 1986.

Not only did the number of people working fall in the March quarter, it was also down in annual terms, falling on a seasonally adjusted basis by 5000, or 0.2 per cent, over the year.

Westpac chief economist Brendan O'Donovan called today's job figures "an absolute shocker".

He said the figures were "extraordinarily weak".

"It dramatically pulls forward the prospects of an interest rate cut, the market pricing will go towards pricing in a cut for July," Mr O'Donovan said.

"With employment normally being a lagging indicator, for a correction of this magnitude so early in this economic downturn augers poorly for household sector prospects."

"There's nothing in this survey that is particularly comforting," said Goldman Sachs JBWere economist Shaumubeel Eaqub.

"It adds weight to our view that the economy is slowing very sharply, and the downside risks are far more palpable than the Reserve Bank is giving credit for.

"We continue to believe interest rates need to be cut and we think between June and September is still a very good call."

ASB chief economist Nick Tuffley suggested the Reserve Bank could cut interest rates by 50 basis points, or half a per cent, in September. 

The sharp decline in people working adds to growing concerns about the state of the New Zealand economy, amid continuing fallout from a global credit crunch at the same time as oil prices are soaring.

Yesterday, the Reserve Bank was sounding concerned as it highlighted potential risks to the New Zealand economy in a report.

Also yesterday, retailer Briscoe Group, which runs the Briscoes homeware chain, plus the Living & Giving and Rebel Sport chains, reported a 10 per cent slump in same store sales in the April quarter.

Its managing director Rod Duke predicted other companies would be similarly hit as people tightened their belts in response to rising interest rates and food and petrol prices.

SNZ said the decline in employment during the March quarter came after a period of increasing employment numbers since 1999.

The labour force participation rate fell by 0.9 percentage points to 67.7 per cent, as the number of people in the labour force decreased by 24,000, or 1.1 per cent, to 2.22m, while the working-age population grew by 10,100 or 0.3 per cent.

Full time employment dropped by 1.7 per cent in the March quarter, driven by a decline in female full time employment of 22,000 following an increase in the December quarter of 31,000. Male full time employment was down by 0.6 per cent, SNZ said.

The number of people unemployed increased by 4000, or 5.5 per cent, with the number of unemployed females up by 3000 to 40,000, while the number of unemployed males increased by 1000 to 41,000.

The total number of actual hours worked per week decreased by 1.9 per cent, seasonally adjusted, in the March quarter. On an annual basis the number of actual hours worked was down 1.6 per cent.

Unadjusted figures put unemployment rates for Maori at 8.6 per cent, at 8.2 per cent for Pacific peoples and at 3 per cent for Europeans.

- NZPA

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