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Australia's Rapid Jobs Growth Cools in June

Australian employment growth slowed in June from the furious pace of previous months while the jobless rate ticked up from 33-year lows, easing pressure for a restraining rise in interest rates.

The jobless rate edged up to 4.3 percent, from 4.2 percent in May, which was the lowest reading since November 1974. All the weakness was in full-time employment, which fell 34,300, but again that only reversed part of May's huge 68,700 jump in May.

The Australian dollar pulled back from 18-year highs while bond and bill futures pared early losses as the market priced in less risk the Reserve Bank of Australia (RBA) would raise interest rates at its next meeting in August.

"Looking over the past six months, employment growth is still incredibly strong and the jobless rate has fallen a quarter of a percentage point," said Brian Redican, a senior economist at Macquarie Bank.

"That will keep the RBA thinking about whether it should tighten, but today's figures don't push it any closer to a hike." Thursday's data showed employment rose 2,500 in June, short of forecasts of a 13,500 gain but that came after an upwardly revised 43,200 increase in May.

"I don't think today's result should in any way let analysts infer that this is the start of a new trend," said Joshua Williamson, a senior strategist at TD Securities. "With the growth pulse of the economy this is more likely just statistical payback for the very strong growth we've seen since November '06," he added. "Though, this result might make the RBA feel a little easier about the August board meeting."

Whither Wages?

Williamson suggested the pullback in employment might not be a sign of waning demand for workers, but rather that firms were having trouble finding suitable labor.

Employers created a net 284,500 new jobs in the year to June, a massive result in a country with a labor force of less than 11 million. Growth was greatest in business services, such as finance and property, in construction and manufacturing and in household services like cafes and restaurants.

The RBA has long been concerned that fierce competition for suitable labor would drive up wages and prices, but apart from some pockets of largesse in mining and construction, wages growth across the economy has been remarkably subdued.

The government's main indicator of wage costs is running at around 4.1 percent a year, below the 4.5 percent barrier that analysts consider a risk to inflation.

This restraint owes much to an increase in the supply of workers, both through policies encouraging women and the retired into the workplace and through record immigration. The government has just lifted its immigration quota to 150,000 a year, with much of that aimed at skilled workers.

Policy makers have also pointed to deregulation in the labor market which has stopped high wages awards in one sector being used as benchmarks for the whole economy.

Indeed, just last month RBA Governor Glenn Stevens held out the hope that a more flexible labor market meant Australia had a better chance of managing inflation than in the past. Historically, Australia often did not manage periods of prosperity very well, as our institutional and policy structures were not sufficiently flexible," said Stevens, in a speech that was seen as lessening the risk of near-term rise in rates. "The chances of success are much higher on this occasion, and the evidence so far is that we are doing much better."

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