N.Z. Jobless Rate Rises to 5%, Less Than Central Bank Expected

By Tracy Withers

May 7 (Bloomberg) -- New Zealand’s jobless rate rose less than economists and the central bank expected in the first quarter, driving up the nation’s currency on signs the economy may be heading out of recession.

The unemployment rate increased to a six-year-high 5 percent, Statistics New Zealand said in Wellington today, citing seasonally adjusted figures. The central bank had predicted 5.2 percent and the median estimate of 13 economists surveyed by Bloomberg News was for 5.3 percent.

Signs the worst of New Zealand’s recession may be past prompted currency investors to bet that Reserve Bank Governor Alan Bollard may have finished cutting interest rates. Bollard has reduced the official cash rate by 5.75 percentage points to a record low of 2.5 percent since July to support an economy that is entering is sixth quarter of recession.

“The economy has been in recession for a while now, so it is not a bad outcome,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “The labor market has been deteriorating, but it is happening at a slower pace.”

New Zealand’s dollar rose to 58.77 U.S. cents at 11:55 a.m. in Wellington from 58.35 cents immediately before the report was released. Earlier, it reached a three-week high of 59.04 cents. The yield on a three-year government bond climbed 3 basis points, or 0.03 percentage points, to 3.64 percent.

Bollard last week cut the benchmark interest rate by half a percentage point. He said he was unlikely to raise the rate before late 2010 and may need to lower it further.

Discouraged Workers

To be sure, investors may be misreading the outlook for the labor market and the economy, said Annette Beacher, senior economist at TD Securities in Singapore.

“The unemployment rate rise was capped as the participation rate always declines during a cyclical downturn” in the New Zealand economy, Beacher said.

The participation rate, which measures the proportion of the population working or seeking employment, dropped to 68.4 percent from 69.1 percent in the fourth quarter, matching economists’ median expectation.

The falling participation rate reflects “discouraged workers,” who drop out of the workforce, Beacher said.

The number of people working or seeking work fell 17,000 to 2,297,000 as people who lost jobs moved out of the labor force, the statistics agency said. The number not looking for work or unavailable to work increased 24,000 to 1,061,000.

Employment Slumps

Economists said the jobless rate will keep rising amid a slump in business confidence and hiring intentions, which is prompting companies to fire workers.

Employment fell 1.1 percent, or about 24,000 jobs, in the first quarter, the statistics agency said today. Economists expected employers would shed 22,000 jobs. The decline is the most since the second quarter of 1989.

Business confidence slumped to the lowest since 1974 in the first three months of this year, the New Zealand Institute of Economic Research Inc. said on April 7. A net 65 percent of firms expect the economy will worsen over the next six months.

The same survey showed a net 36 percent expect to fire workers in the next three months, the most since 1991. The net is calculated by subtracting the pessimists from optimists.

Tourism Holdings Ltd., the nation’s largest campervan company, yesterday said it fired 64 workers at its CI Munro manufacturing unit amid slowing demand. Ports of Auckland Ltd., New Zealand’s largest port, will fire about 30 workers to reduce costs amid a slump in shipments, it said last month.

Wage Pressure

The rising unemployment rate will ease pressure on wages and slow spending, justifying Bollard’s decision to cut borrowing costs.

Wages for non-government workers rose 0.5 percent in the first quarter, the slowest pace in five years, the statistics agency said yesterday.

Total actual hours worked gained 0.2 percent from the fourth quarter, the agency said.

Full-time employment fell by 11,000 jobs, or 0.7 percent, in the first quarter after seasonal adjustments.

Part-time employment slumped by 16,000 jobs, or 3.1 percent. Statistics New Zealand adjusts the full-time and part-time employment figures separately, which means they may not add to the total change in employment.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.