Australian employment dipped unexpectedly in January, but the jobless rate hit a new 30-year low of 4.5%, keeping alive the risk that a lack of suitable labor will eventually generate wage and price pressures.
Government figures on Thursday showed employment fell by 3,600, seasonally adjusted, in January, while analysts had looked for a 5,000 gain. Still, that came after two very strong months and December was revised to show an even larger 46,000 increase.
"The key is the unemployment rate and that has dropped again," said Stephen Walters, chief economist at JPMorgan. "It does suggest the labor market is still very tight and, in fact, getting tighter."
The dip in the jobless rate surprised analysts who expected it to remain steady at 4.6%. The 4.5% rate was the lowest since 1976, when the jobs figures were compiled quarterly. "You certainly can't rule out further rate hikes from here," said Walters. "We're not forecasting one but if the unemployment rate keeps falling, then the RBA might be forced to come back in."
The data came just a day after the Reserve Bank of Australia (RBA) left interest rates unchanged at 6.25% following its monthly board meeting.
Financial markets focused on the fall in unemployment, with the Australian dollar edging up above 78 U.S. cents, while bond and bill futures eased as investors priced in a little more risk of a rate increase later in the year.
"The RBA will continue to look at the labor market as a potential source of wage and price pressures," said Stephen Halmarick, co-head of market economics at Citigroup. "I think this will probably be sufficient for them to send a signal that the next move in interest rates is still more likely to be up than down, although we don't expect anything in the near term," he added.
Focus On Wages
The central bank will issue its quarterly statement on monetary policy next Monday and analysts assume it will repeat past warnings on labor costs.
Oddly, though, even though the economy generated over 300,000 new jobs last year and the unemployment rate fell inexorably, wages growth has remained remarkably steady at around 4.5% a year. "This will put the onus back on the wage data, since that's the shoe that hasn't dropped yet," said Brian Redican, a senior economist at Macquarie Bank.
"We've got unemployment at 30-year lows and record capacity utilization, yet wages have been well behaved," he added. "As long as that lasts, today's data doesn't really change the balance of risks for policy makers."
One factor alleviating wage pressures has been a steady rise in the number of people looking for work, with more women than ever in the labor pool and older workers staying on past normal retirement. Thus the participation rate hit a record high of 65% in December, before dipping slightly to 64.8% in January.
The government has also been actively encouraging skilled immigration to Australia, with a record 97,340 entering under the skilled program in the year to June 2006.