SYDNEY, Aug 8: Australian employers shed a net 10,200 workers in July to confound expectations of a small rise, a soft reading on the labour market that underlined the case for the latest cut in interest rates to record lows.
Thursday’s figures from the Australian Bureau of Statistics showed the jobless rate did buck expectations of an increase by holding steady at 5.7 percent, though only because fewer people went looking for work.
The result confirmed there was plenty of slack in the labour market which would allow the Reserve Bank of Australia (RBA) to ease policy again, should this week’s cut to 2.5 percent fail to enliven the economy.
‘It’s consistent with most people’s perception of the labour market that is certainly on the softer side,’ said Brian Redican, a senior economist at Macquarie.
‘We do think that the Reserve Bank will be compelled to keep on cutting rates over the second half of this year. We’ve got a 2 percent cash-rate target by year end.’
The prospect of yet lower rates saw the Australian dollar dip a quarter of a U.S. Cent on the data to $.8990.
Interbank futures <0#YIB:> continue to price in a move to 2.25 percent by Christmas, though a cut at the next RBA meeting on Sept. 3 is considered highly unlikely, not least because it would come just a few days before a federal election.
For now, the market is pricing in around an 80 percent chance of a cut to 2.25 percent in November, while it is fully factored in for December.
The outlook for policy could be clearer on Friday after the RBA releases its quarterly assessment of the economy. Analysts see risks it might trim forecasts for economic growth while nudging estimates for inflation just a little higher.
OUTPACED BY POPULATION
The jobs series has been even more volatile than usual this year with surprisingly large gains in February and April and a sharp fall in March.
Overall, the labour market had surprised with its resilience this year given a sluggish economy. Yet strong population growth – 1.8 percent for 2012 – means employers have to add more and more jobs every month just to stop the unemployment rate from rising.
‘There’s been just enough jobs growth to not fully satisfy the new entrants to the market, so the unemployment rate is just gradually trending up,’ said Michael Workman, a senior economist at Commonwealth Bank of Australia.
‘It looks like we’ll get a number near six maybe early next year.’
The Labor government seemed to accept the inevitable last week when it revised up its forecasts for unemployment, now seeing it peak at 6.25 percent. Such an outcome would even be above the highs hit during the global financial crisis.
Still, the slack in the labour market should help restrain domestically-generated inflation and so provide room for interest rates to stay low.
(AGENCIES)
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