Australia's jobless rate fell to three-decade lows in March while employers took on more full-time workers in a sign of underlying strength in the economy which may yet require a restraining rise in interest rates.
Government figures on Thursday showed overall employment rose by 10,500 in March, a little less than expected. But full-time jobs jumped a hefty 31,700 and the jobless rate dropped a tenth of a percentage point to 4.5%, matching a 31-year low seen in January.
"It's a pretty strong report driven mainly by full-time employment," said Su-Lin Ong, senior economist at RBC Capital Markets. "It shows the strength of the economy and is consistent with the Reserve Bank's tightening bias."
Investors reacted by nudging the Australian dollar up to fresh 16-year highs of 82.73 U.S. cents, while bond and bill futures stayed soft as the market priced in slightly more risk of a rise in interest rates.
"We really needed to see an easing in labor market tightness to take the possibility of a rate hike off the table," said Adam Carr, a senior economist at UBS. "The market is pricing around 60% for a rate hike in May and we wouldn't necessarily disagree with that," he added.
The Reserve Bank of Australia (RBA) surprised many in the markets by skipping a chance to tighten at its April meeting last week, but may yet move at its May meeting depending on what key inflation data due on April 24 show.
Early forecasts are that annual underlying inflation slowed to around 2.8% last quarter, from 3.0% in the fourth quarter of 2006, putting it back within the central bank's 2% to 3% target band.
Whether it stays there, could depend on whether the labor market tightens far enough to push wages higher.
Watching Wages
So far, wages have been generally well behaved with the government's main indicator of wage costs running at around 4.0% a year, below the 4.5% barrier that analysts consider a risk to inflation.
Analysts consider that a remarkable performance given the economy generated over 300,000 net new jobs in 2006, a massive increase for an economy with a workforce of just 10.4 million.
The restraint owes much to an increase in the supply of workers, both through policies encouraging women and the formerly retired into the workplace and through skilled immigration, which is running at around 140,000 a year.
"The wages growth of above 4.5% is concentrated in only three sectors, construction, utilities and mining," noted Michael Workman, a senior economist at Commonwealth Bank. "Most of the other sectors are getting around 3.5%. Wages are pretty much under control from the RBA's perspective."
The booming construction and mining industries have been major employers in recent years, though health, education and much of the rest of the government sector have also been taking on a lot more people.
There are few signs as yet that the appetite for labor is waning. Figures out this week showed job advertisements in newspapers and on the Internet ran at an average 220,754 in March, up almost 25% on a year earlier and a new record.