The December labour market report from Statistics New Zealand paints an inconsistent view of the labour market.
The combination of the Household Labour Force Survey, the Quarterly Employment Survey and the Labour Cost Index provide a complex picture for the New Zealand labour market.
Unemployment fell to 5.3% from 6%, surprising everyone.
This is the lowest unemployment rate since March 2009.
While there was a solid 1% lift in employment in the three months ending December, the sharp fall in the headline unemployment rate was mainly driven by a steep drop in participation.
The participation rate fell to 68.4% against expectations of an increase.
The fall in participation was largely driven by a drop in male participation - from 74.3% to 74% - while female participation fell more modestly from 63.3% to 63.2%.
The participation rate has fallen for the last three quarters.
The Quarterly Employment Survey also showed signs of solid jobs growth in the quarter, broadly in line with expectations.
Full-time equivalent employment was up 1% against the 0.9% growth expected.
Hours paid were up 1.4% in the quarter.
There were fewer surprises on the wage front as wage growth remained muted.
The Labour Cost Index (all salary and wages) measure increased 0.4% in the quarter against the forecast 0.5%, to leave annual wage inflation at 1.5%.
The private average hourly earnings in the QES were weaker than expected, up 0.2% to leave average hourly earnings 2.5% higher than a year ago.
Statistics NZ said the drop in labour force participation was a result of the labour force growing at a slower rate than the working-age population.
That gave rise to an increasing number of people not participating in the labour force: 14,000 more in December quarter and 61,000 over the year.
The annual increase was partly from there being more people who were retired (up 31,500) and more people at home but not looking after children (up 15,400).
In the year to December, the unemployment rate fell for the North Island to 5.6% and the South Island was unchanged at 4.1%.
Only Taranaki had a lower unemployment rate than Tasman/Marlborough/West Coast at 4.2%, Canterbury 3.9% (the lowest in the country), Otago 4.5% and Southland 4.1%.
Westpac senior economist Anne Boniface said taken at face value, the labour report suggested the New Zealand labour market was in better shape than it had been given credit for.
‘‘Yet for all that, the low inflation environment appears to be keeping a lid on wage increases. For the Reserve Bank, today's labour market release will give them pause for thought. There is certainly no evidence of pressures on the wage front, but economic activity certainly looks to have been solid in the final quarter of the year.''
There were reasons to be cautious about taking the latest data at face value, she said.
The detail was not quite as strong as the sharp fall in the unemployment rate would have us believe.
Yes, jobs growth had been strong but not spectacular.
It was unusual to see employment and participation head in opposite directions quarter to quarter, she said.
‘‘What is more, we have seen no other indicators consistent with the unemployment rate having plunged quite that rapidly in a single quarter.''
Markets appeared to take the release with a pinch of salt, Ms Boniface said.
The two-year swap rate only rose 0.1% on the news while the dollar briefly bounced before retracing.
Tertiary Education, Skills and Employment Minister Steven Joyce and Labour Party finance spokesman Grant Robertson engaged in a debate on social media about the figures.
In a statement, Mr Joyce said the construction sector led the way with 27,500 more people employed in the year to December, largely driven by residential construction in Auckland.
It was also positive to see strong growth in technicians and trade workers, with 20,800 more employed over the year.
The unemployment rate was better than nearly all commentators anticipated, he said.
While that measure would continue to move around each quarter, the job growth and employment figures for New Zealand continued to be strong relative to nearly all other developed countries.
‘‘This shows the New Zealand economy is growing well relative to our competitors,'' Mr Joyce said.
