Unemployment dropped sharply in the March quarter to 6.2% from 6.8%, according to Statistics New Zealand's Household Labour Force Survey (HLFS).
The figure is much lower than the market consensus expectation of a figure of 6.8%. The latest figures are sure to perplex economists, being much stronger than expected.
This follows two quarters where first the unemployment rate came in much higher than anticipated and then in December the numbers of people in employment were much weaker than expected.
The Kiwi dollar shot up more than half a cent in value against the American dollar, reversing all of the falls caused yesterday by comments from Reserve Bank Governor Graeme Wheeler that the RBNZ had been intervening in the currency markets.
Tertiary Education, Skills and Employment Minister Steven Joyce welecomed the figures as a sign the economy was heading in the right direction, but said: "While the fall in unemployment is a good result it may be a little too good as this survey is known to move around and we need to be cautious."
Westpac chief economist Dominick Stephens and senior economist Felix Delbruck said the employment figures "gave an unusually clear signal that the labour market has improved".
"Interestingly, the labour market appears to have improved outside of the quake-affected Canterbury region. The NZ ex-Canterbury unemployment rate fell from 7.2% to 6.5%. This contrasts with last year, when the signs of labour market improvement were pretty much confined to Canterbury, " they said.
"The signal in this data is clear. But that does not mean it is 'correct'. The HLFS has thrown some wild signals in recent years. Last year, the HLFS was much weaker than other labour market indicators."
Stephens and Delbruck expressed caution in looking at the HLFS figures and said it was worth considering a wide range of labour market indicators. Wider labour market indicators suggested that the New Zealand labour market was roughly flat in 2012, but has improved modestly in the March quarter of 2013.
Important for RBNZ
"This is important for the Reserve Bank. In the September quarter of last year, the unemployment rate leapt unexpectedly to 7.3%. The RBNZ, alongside most other economists, suspected that was probably a rogue signal. But nobody could be absolutely certain. The RBNZ fretted about the possibility that the labour market really was getting weaker," they said.
"Today's data strongly discounts that risk. The central bank is now free to focus on the other factors affecting inflation - the Canterbury rebuild and rising house prices on the upside, Government austerity and the high exchange rate on the downside.
Statistics NZ in releasing today's figures said the employment rate rose to 63.7% from 62.7% in the December 2012 quarter.
The 6.2% unemployment rate compared with a revised figure of 6.8% (revised down from 6.9%) in the December quarter.
There were 38,000 more people employed this quarter – up 1.7%.
Range of industries
Statistics New Zealand said the rise in employment came mainly from full-time employment and was across a range of industries, industry and labour statistics manager Diane Ramsay said.
"We saw labour market conditions improve over the quarter as employment increased and unemployment fell. This improvement followed a period of weakness over 2012, when employment and labour force participation fell," she said.
"However, while this is a strong turnaround, the labour market has yet to recover to levels seen at the start of last year."
The number of people unemployed fell by 15,000 over the quarter.
"We usually see actual unemployment rise in March quarters as a result of seasonal factors, such as students entering the job market. We didn't see this happen this quarter, and this has resulted in a larger than expected seasonally adjusted quarterly fall," Ramsay said.
Labour force rises
The number of people in the labour force rose in the March 2013 quarter.
As a result, the labour force participation rate rose 0.6 percentage points to 67.8%. Despite increasing over the quarter, participation fell 0.8 percentage points over the year to March 2013.
The number of people outside the labour force decreased in the March 2013 quarter. Over the year Canterbury's labour market has continued to improve, with both employment and participation rising.
The region's unemployment rate is now down to 4.3%. Excluding Canterbury from the national estimates shows a much weaker labour market, with both the employment rate and labour force participation rate falling over the year.