Unemployment is about to start rising rapidly with the first signs of that to be seen in the December household labour force survey figures due on Thursday morning.
Market expectations are for unemployment to rise to 4.6% in December, up from 4.2% in September.
While that is not a large jump, Westpac chief economist Brendan O'Donovan expects unemployment to rise to 6.4% by the end of the year.
When the figures were released on Thursday, they would show that New Zealand's employment downturn had reached a new phase.
"The first phase was bad but not that bad. For the first three-quarters of 2008, employment was basically flat. Sure, there were layoffs but for the most part affected workers were able to find alternative jobs fairly quickly."
"Consequently, unemployment rose only modestly. The picture is now uglier."
The NZIER's quarterly business survey revealed that more firms had been firing than hiring.
Mr O'Donovan expected overall employment to have fallen 0.5% from September to December, with full-time employment disproportionately weak.
He was bracing himself for something much worse next quarter.
Staff laid off from one firm were much less likely to find work at another.
Instead, many would become unemployed.
The labour force participation rate tended to fall when unemployment rose and Westpac was forecasting a small fall in participation for the December quarter.
In the first half of last year, the employment figures were "extremely volatile", dropping precipitously in one quarter and recovering entirely the next, he said.
The participation rate moved in tandem with employment, while unemployment was steadier.
"Uncertainty around our employment forecasts is extreme and it will be difficult to read much into the number. However, we may get a clue from what happens to participation."
If both employment and participation lurched in the same direction, the numbers would be treated as aberrant.
If employment lurched alone, it would be treated as a genuine surprise.
The market should focus more on the unemployment rate and less on employment, Mr O'Donovan said.
New Zealand's suite of wage data will be released this morning.
Wage growth had been strong in recent years and hit a record high last quarter.
The market consensus is for another fairly strong quarter for wages.
Mr O'Donovan said the most important wage data was the labour cost index which he expected to grow nearly 1% in the December quarter.
Statistics New Zealand did not seasonally adjust the index but September and December were the strongest quarters in an emerging seasonal pattern.
More people got their annual wage increase in the second half of the year.
"The second reason our wage forecast is not weaker is that labour cost index wage inflation tends to follow inflation expectations far more than economic growth or unemployment, and inflation expectations were still very high in November when the survey was taken."
The "adjustment" process in the index tended to strip out the cyclical affects but the unadjusted index, released concurrently, tended to be more sensitive to the economic cycle.
Mr O'Donovan said he treated that as a useful lead signal.
The unadjusted index jumped a record 1.5% in September and he expected 1.2% for December.
The quarterly employment survey, also out today, was responsive to the economic cycle but was very volatile, meaning it was hard to read much into a single quarterly result.
The quarterly employment survey also gave hints about the state of economic activity.
For the fourth quarter, activity was expected to be well below zero.
