Australian Jobs Jump Puts Rate Cuts in Doubt

Australian employment jumped against all expectations in April while the jobless rate
declined, in a major surprise that could calm fears of a deep recession and throw doubt on the need for further interest rate cuts.

The Australian dollar leapt to seven-month highs and bill futures tumbled as investors bet the Reserve Bank of Australia (RBA) would keep rates at 3 percent for some months to come, and might even be done cutting this cycle.

"It's very good news," said Rory Robertson, interest rate strategist at Macquarie. "Australia's recession might not be as deep or long as feared just a month ago."

"The RBA will be on hold for the next couple of months at least, though there's plenty of scope for bad news down the track," he added.

Earlier this week the central bank skipped a chance to ease any further, saying the full impact of past stimulus had yet to be felt. It had already cut rates by a huge 425 basis points since September, while the government had weighed in with over A$52 billion ($39 billion) in stimulus.
The RBA's optimism on the economy seemed to be supported by Thursday's data. Employment climbed 27,300 in April, when analysts had expected a fall of 25,000. There was a 49,100 rise
in full-time jobs, which typically offer greater pay and security.

The unemployment rate dropped back to 5.4 percent, from a five-year high of 5.7 percent in March. Analysts had expected a rise to 5.9 percent given many leading indicators of the labor market, such as job advertisements, were pointing to weakness.

It also stood in contrast to neighbor New Zealand where the jobless rate had climbed to a six-year high.

"Shock"

"I'm in shock. There's absolutely no economic justification for a bounce in employment," said Annette Beacher, a senior strategist at TD Securities in Singapore, echoing the doubts of more than a few economists.

"The RBA will be sitting on the sidelines as this strong data washes around," she added. "But, as with all outliers, we need to see at least 2-3 consecutive stronger outcomes to reverse our
belief that the economy is on a decelerating path."

Yet the gains in jobs followed a surprisingly upbeat report on retail sales for March, which showed consumers freely spending on clothes and household goods with wallets fattened by
government handouts.

Sales jumped 2.2 percent on the month and were up 1.0 percent in real terms for the first quarter. Combined with a strong performance by Australia's export sector, that suggested any
contraction in the economy last quarter should have been limited.

Most observers, including the government and the central bank, had reckoned the economy slipped into recession last quarter, the first since 1991.

The Labor government's annual budget is also announced next week and is likely to include more spending and support for pensioners and the low-paid.

There was a chance the better news on jobs could start a virtuous cycle, lifting confidence, spending and so employment.

"Today's data are a refreshing pause after the sharp rises in unemployment seen in recent months," said Scott Haslem, chief economist at UBS. "They certainly have the potential to improve or support business and consumer confidence."

Copyright 2009 Reuters. Click for restrictions.