SINGAPORE - The labour market has continued to show slight improvements in the first quarter of 2018, with retrenchment numbers the lowest in nearly seven years and the unemployment rate of residents hitting a two-year low.

In a labour market report released by the Ministry of Manpower (MOM) on Friday (April 27), preliminary data showed that the number of retrenchments in the first quarter of this year was 2,100, a drop from 3,680 in the preceding quarter and half the 4,000 in the same quarter last year.

The latest figure is also the lowest since the third quarter of 2011, when the number of retrenchments stood at 1,960.

Retrenchments declined over the first quarter of this year in manufacturing, construction and services, said MOM in the report.

The overall unemployment rate too has fallen to 2 per cent, from 2.1 per cent in the preceding quarter.

The latest resident unemployment rate is 2.8 per cent, down from 3 per cent in the previous quarter - the lowest since the first quarter of 2016 - while that of citizens remained unchanged at 3 per cent.

The estimated number of unemployed citizens dipped from 58,600 to 57,900, said the report.

Total employment, excluding foreign domestic workers, contracted by 2,100 in the first quarter of this year. MOM said this was due largely to a decrease in work-permit holders in the construction and marine shipyard sectors.

It added that sectors such as community, social and personal services, financial and insurance, information and communications, as well as transportation and storage, continued to see an increase in employment.

However, MOM cautioned: "While unemployment rates have declined from a year ago, further improvement will be harder to achieve."

It added: "Addressing potential job-skills mismatches remains critical, as the economy restructures and the profile of the resident labour force evolves."

In a Facebook post on Friday, labour MP Patrick Tay said he was glad to see that retrenchments had fallen significantly, adding that he expected retrenchment numbers to remain low for the first half of the year.

But the assistant secretary-general of the National Trades Union Congress cautioned: "Although this may suggest an improved economic outlook... we have to be mindful that there may still be pockets of layoffs in some firms and sectors due to technological disruption and business restructuring as the economy transforms."

Economists said the decline in retrenchment numbers is encouraging and is in line with the improvement in overall business performance. But they said it was too early to tell if the labour market is on a firm footing.

Associate Professor Randolph Tan of the Singapore University of Social Sciences, pointing to the uneven hiring across sectors, said the unemployment situation could still fluctuate.

He added that the key to long-term improvement lies in ensuring that workers have the skills needed by companies in the ongoing economic transformation.

Maybank Kim Eng economist Chua Hak Bin, meanwhile, found the total employment number "disappointing", adding that stricter manpower policies could be limiting overall employment growth, which could affect economic growth.

"It's hard to imagine, in the longer term, that (gross domestic product) growth can be sustained at around 3 per cent if employment growth remains soft," he said. "We are pretty much at full employment and the risk is, with the tight foreign manpower restrictions, whether wage pressures will flare up more visibly."

Prof Tan, though, noted that the continued decline in employment for sectors such as construction and marine shipyard has not had a massive spillover effect. He said this was likely due to initiatives to prevent skills mismatches from worsening, and because demands from sectors are still being met by the domestic labour pool.

CIMB Private Bank economist Song Seng Wun expects improvements in the labour market to continue in the second half of the year, where there tends to be more job creation in the service sector. However, he added, this is barring a significant shift in sentiments because of a trade war, given increasing tit-for-tat protectionism measures between the United States and China.