Australia Unemployment Drops to 5.8% as Recovery Strengthens

(Bloomberg) --

Australia’s jobless rate tumbled in February as rising sentiment from a vaccine rollout combined with fiscal and monetary stimulus accelerated the economy’s recovery and returned employment to pre-pandemic levels.

Unemployment dropped to 5.8% from a revised 6.3% in January, data from the statistics bureau showed Thursday in Sydney. Employment jumped by 88,700 in February, compared with an expected 30,000 gain. The participation rate was unchanged at 66.1%, in line with estimates.

“The strong employment growth this month saw employment rise above 13 million people, and was 4,000 people higher than March 2020,” said Bjorn Jarvis, head of labor statistics at the ABS.

The Australian dollar advanced after the data’s release and was trading at 78.22 U.S. cents at 1:06 p.m. in Sydney. The yield on 10-year government notes also gained.

The jobless rate has now fallen below the Reserve Bank of Australia’s year-end estimate, highlighting the V-shaped recovery as Covid-19’s containment boosts confidence and encourages cashed-up households to spend. Yet there could be a pause in the decline, given the government’s JobKeeper wage subsidy is set to expire, though the labor market appears well positioned to absorb it.

“The end of JobKeeper will present some headwinds for the outlook; some of the group of employees working less hours than usual could lose their job when the scheme comes to an end,” said Sarah Hunter, chief economist for BIS Oxford Economics. “But broadly speaking, the labor market continues to outperform and the recovery shouldn’t be derailed by the end of the scheme.”

The RBA’s February forecasts show the jobless rate falling to around 6% by the end of this year and 5.5% at the end of 2022. Under an optimistic scenario for unemployment, the rate would drop to 4.75% by the end of next year.

Governor Philip Lowe last week suggested the economy remained a fair distance from full employment. He said in a speech that, based on recent experience, “it is certainly possible that Australia can achieve and sustain an unemployment rate in the low 4s, although only time will tell.”

Among other details in today’s jobs report:

• Monthly hours worked increased by 6.1%
• Under-employment rose by 0.4 percentage point to 8.5%, while under-utilization fell by 0.1 percentage point to 14.4%
• Full-time jobs rose 89,100 and part-time roles fell by 500 roles
• Unemployment declined in all states and territories

What Bloomberg Economics Says...

“Unemployment, but more importantly underutilization, has a lot further to fall before the labor market gets anywhere close to where the RBA needs it to be to begin generating sustained inflation within the economy. With fiscal support fading, monetary policy won’t be going anywhere with this labor market.”

-- James McIntyre, economist

The central bank last month extended its quantitative easing program by a further A$100 billion ($78 billion) and reiterated that it doesn’t expect to increase interest rates until 2024. It’s trying to keep a lid on a currency, which left unchecked could appreciate further and hurt exports and employment.

The labor market’s strength comes as JobKeeper, designed to keep workers attached to their employers, expires on March 28. The government is providing ongoing support to industries like tourism and airlines that are still struggling from closed borders.

The RBA late last year cut interest rates and its three-year yield target to 0.10% and initiated a quantitative easing program to lower borrowing costs across the economy. That came on the heels of the government announcing tax cuts, incentives for firms to invest and hire and infrastructure projects to boost activity.

©2021 Bloomberg L.P.