NZ: 4Q unemployment rate rose to fresh 5 year high

New Zealand: unemployment rate rose to fresh five year high in 4Q

• Employment increased 0.9%q/q, or by 21,000.
• The unemployment rate increased to 4.6%.
• The labour force participation rate increased to 69.3%.

Employment in New Zealand unexpectedly rose 0.9% in 4Q (J.P.Morgan -1.0%q, consensus -0.7%), after increasing 0.1% in 3Q and 1.3% in 2Q. The unemployment rate continued to rise, however, nudging up to a fresh five-year high of 4.6% from 4.2% in the previous quarter.

The most striking aspect of the labour force numbers was the sharp rise in the participation rate from 68.7% to 69.3%. In the fourth quarter, the working-age population recorded its biggest gain of the year, owing to positive net permanent and long-term migration, but the labour force grew at a faster pace.

Both full-time and part-time employment rose in 4Q, rising 0.3%q/q and 3.5%, respectively. We believe the sharp jump in part-time workers, in particular, was owing to worker hours being cut back or previously non-working members of the household returning to the workforce in an effort to make financial ends meet. Total hours worked per week fell by 1.9%q/q in the fourth quarter, indicating the underlying weakness in the labour market.

Labour market conditions should loosen in 2009 as the New Zealand economy battles through recession. Our forecast calls for the economy to contract 0.7% in 2009. Low business confidence means that most companies will be reluctant to hire new staff. Business confidence is near a 20-year low and firms' own activity expectations are the weakest on record. In our view, with this in mind, firms will start shedding human capital to cut costs as economic momentum slows, sending the unemployment rate to 7% by year end. To some extent, though, the migration of skilled labour abroad will keep the pool of available workers low, curbing the rise in the unemployment rate.

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