Australian Unemployment Unexpectedly Climbs; Currency Drops

(Bloomberg) --

Australia’s unemployment rate increased and the economy shed jobs for the first time in 17 months, a surprise result adding to evidence that central bank interest-rate cuts are failing to gain much traction.

The jobless rate advanced to 5.3% in October from 5.2%, data from the statistics bureau showed Thursday; economists had expected it to hold at 5.2%. Highlighting labor market slack, the under-utilization rate, which combines unemployment and under-employment, rose 0.3 point to 13.8%.

The currency declined and money markets boosted bets on a rate cut in February as the jobless rate exceeded 5.2%, where the Reserve Bank had predicted it to remain through next year. Almost out of conventional policy ammunition to galvanize the economy, RBA Governor Philip Lowe may need to lean on a depreciating currency to bolster exporters and lift inflation.

“Australia’s latest labor force figures make another rate cut a certainty,” said Callam Pickering, an economist at global jobs website Indeed Inc., who previously worked at the central bank. “To kick-start the economy we will need greater stimulus. Much more needs to be done, whether it be through further rate cuts, unconventional monetary policy or, in an ideal world, fiscal stimulus.”

Unorthodox Policies

To date, the government has resisted Lowe’s calls for fiscal support, fueling speculation the central bank will have to turn to unorthodox policies next year. The governor is due to speak on the subject later this month.

The data showed New South Wales, the most populous state, led unemployment higher, with its rate rising to 4.8% in October from 4.5% a month earlier. Victoria, the next biggest, edged up to 4.8% versus 4.7%. The northern state of Queensland led job losses, shedding 14,000 positions, with NSW losing 10,300.

The RBA has cut rates three times since June seeking to boost hiring and investment, but so far the easing has shown little impact apart from the housing market. The decision to resume cutting aimed in part to prevent the Aussie dollar from rebounding in response to renewed easing by the Federal Reserve.

The U.S. central bank has now signaled it’s on hold after cutting 75 basis points -- the same as the RBA -- and Lowe left rates unchanged last week.

The Aussie dollar slipped to 68.01 U.S. cents at 1:48 p.m. in Sydney, from around 68.38 before the data. It has depreciated more than 16% since early last year.

The central bank, in its quarterly Statement on Monetary Policy released Friday, forecast unemployment to hold around 5.2% through the end of 2020 and for wage growth to remain at 2.3% through 2021. This suggests an acceptance that its strategy of trying to push the jobless rate down to 4.5% -- estimated full employment -- to spark wage growth and return inflation to the 2%-3% target is unlikely to achieve its goals for a while yet.

Data Wednesday showed annual wage growth of 2.2% in the three months through September

What Bloomberg’s Economists Say:

“The RBA’s November SMP forecasts have been tested twice in the first week after publication. Sluggish 3Q 2019 wage growth means a pickup will be needed to reach the RBA’s already downgraded wage forecasts. And momentum in jobs growth now looks to be softening at a faster pace than the RBA’s employment outlook has anticipated.”

James McIntyre, economist

Still, Australia’s labor market has remained remarkably resilient over the past 12 months. Hiring has held up even as the economy decelerated sharply, expanding at an annual 1.4% rate in the most recent reading, about half its estimated speed limit.

Even then, the strong employment failed to translate into a lower jobless rate, as new positions were filled by new entrants to the labor market.

The RBA is betting that a combination of rate cuts and government tax rebates will eventually encourage consumers to spend and keep the economy ticking. Rising house prices and the associated wealth effect are expected to help that cause.

--With assistance from Tomoko Sato and Garfield Reynolds.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Malcolm Scott, Michael S. Arnold

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