5 Feb 2010

Jobless rise may push back interest rate hike

7:16 am on 5 February 2010

The financial market has pulled back its expectations of interest rates hike to the middle of the year after unemployment hit its highest level in a decade, as the recovering economy led more people to look for work.

The unemployment rate rose to 7.3% - its highest in a decade - at the end of December, Statistics New Zealand's household labour force survey shows.

That is 18,000 more people out of work, double the Labour Department's forecast of 9000.

The total number of New Zealanders recorded as out of work in the December quarter is 168,000.

ASB Bank's chief economist, Nick Tuffley says the majority in the market had expected the Reserve Bank would start raising rates from April, but the unexpectedly sharp jump in joblessness now has them picking June, in line with the Reserve Bank.

He says employment shrank by only 0.1% to 2.15 million, indicating the jobs market is stabilising, and he is expecting weak job growth to appear during this year.

However more people will be looking for work, so the unemployment rate is likely to linger and higher levels and may rise to 7.5%, he says.

Hours worked declined, and the participation rate, which measures the proportion of people in jobs or looking for work, rose slightly to 68.1% in the December quarter.

The New Zealand dollar fell to below US 70c following the release of the unemployment figures on Thursday.