Australian Unemployment Unexpectedly Falls; Currency Gains

(Bloomberg) -- Australian unemployment unexpectedly declined in November as the labor market persisted in defying slower economic growth, validating the central bank’s decision to pause interest-rate reductions.

Employment jumped 39,900 last month, compared with economists’ estimates of a 15,000 gain, data from the Australian Bureau of Statistics showed Thursday. The jobless rate fell to 5.2% vs a forecast 5.3%, while participation was unchanged at 66%. The ABS said bushfires had resulted in “minor disruption to data collection” in New South Wales, Queensland and the ACT.

“The improvement in the unemployment rate, as well as broader measures of labor slack, is undeniably positive,” said Callam Pickering, an economist at global jobs website Indeed Inc. who previously worked at the central bank. “Nevertheless, there are still concerns over the labor market outlook. Measures of job vacancies and job advertisements have declined. And the broader economy remains weak outside of exports. Policy-makers are unlikely to overreact to a single month of positive data.”

The result extends an almost three-year run of hiring strength in the economy that has withstood volatility offshore and a slowdown at home. Still, unemployment has been unable to break lower and wage growth has remained tepid as it coincided with a swelling labor force.

The Reserve Bank of Australia has cut interest rates three times since June to try to encourage investment and further accelerate hiring in an effort to lift economic growth and inflation.

To date, the RBA’s easing has shown little impact outside reigniting house prices, though Governor Philip Lowe suggests the “long and variable lags” in monetary policy mean it’s likely to take time for the stimulus to work its way through other parts of the economy. The central bank’s cash rate is at a record low 0.75% and Lowe estimates the lower bound at 0.25%, after which unconventional policy would become a possibility.

One factor working in Australia’s favor is that the U.S. Federal Reserve is now on hold after 75 basis points of cuts this year. This means that the interest rate differential between the two countries will not narrow further, placing less pressure on the Aussie dollar to appreciate, assisting Australian exporters. The recent improvement in global sentiment could also encourage firms to push ahead with investment.

Today’s report also showed in November:

• Underemployment slid 0.2 percentage point to 8.3% and under-utilization -- a combination of the jobless and underemployment rates -- fell 0.3 points to 13.5%
• Monthly hours worked rose 2.9 million, or 0.2%, and the employment-to-population ratio gained 0.1 point to 62.6%
• The jobless rate declined in the east coast states of New South Wales, Victoria and Queensland

The central bank, in its quarterly Statement on Monetary Policy released last month, forecast unemployment to hold around 5.25% through the end of 2020 and for wage growth to remain around 2.3% through 2021. However, the RBA said in the December minutes that this level wouldn’t be able to maintain inflation inside its 2%-3% target band.

What Bloomberg’s Economists Say

“Beneath the volatile headline data Australia’s labor market continues to slow. That’s unsurprising given the deterioration across various measures of job ads. The labor market outlook remains challenging. With job growth yet to reflect the slowing in the economy, and the impacts of the decline in residential construction still ahead, the RBA will be relying on a slowing in labor supply to meet its unemployment rate forecast.”

James McIntyre, economist

The Australian dollar traded edged higher after the released and was at 68.71 U.S. cents at 12:54 p.m. in Sydney.

--With assistance from Tomoko Sato.

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, Alexandra Veroude, Malcolm Scott

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