Australia Jobless Numbers Rise Less than Feared

Australian employment fell the most in three months in June as firms cut full-time positions to save costs, while the jobless rate hit its highest in nearly six years at 5.8 percent.

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Yet analysts saw reason for optimism in the numbers, noting the unemployment rate had risen just a tick in the past three months compared to an increase of 1.1 percentage points in the first three months of the year.

"So, the labor market has essentially stabilized far sooner than anyone thought, and questions whether it will hit the heights above 8 percent that people had been expecting," said Brian Redican, a senior economist at Macquarie. "If we're right and it stops well short of 8 percent, it changes the whole outlook for the economy and rates," he added.

Investors also seemed to view the figures as less than dire, with the Australian dollar edging up, while September bill futures dipped as the market trimmed the chances of a near-term cut in interest rates.

The Reserve Bank of Australia (RBA) skipped a chance to ease at its July meeting this week, saying the economy had fared better than feared and pointing to signs of improvement abroad.

But much depends on the outlook for unemployment since the faster and higher it rises the more pressure there will be for further rate cuts. And, analysts note, the RBA has never begun
tightening when unemployment was still rising.

While employment dropped a net 21,400 in June, that was below market forecasts of a 25,000 fall. Likewise the unemployment rate of 5.8 percent, while the highest since October 2003, was below expectations of 5.9 percent.

Not Bad

"Employment is in a very modest decline relative to expectations six months ago, so it's not a particularly bad number," said Michael Blythe, chief economist at Commonwealth Bank.

So far this year, total employment in Australia has dropped by 39,000. In contrast U.S. payrolls have fallen by 3.4 million.

This relative outperformance is leading analysts to question initial expectations of unemployment climbing to 8.5 percent, as the Labor government is forecasting.

"We now think that's too pessimistic," said Blythe. "We think it will peak at around 7 percent by early 2010, and if so we may get the first rate hike in the third quarter of next year."

Crucially firms have been reluctant to fire skilled labor, remembering how tough it was to find qualified workers back when the economy was growing strongly.

The June jobs report did not include a breakdown by industry, but figures for May showed much of the weakness in employment over the previous year was concentrated in manufacturing, utilities and white collar jobs.

Government, health care, hotels and construction actually enjoyed net gains in jobs over the 12 months to May. And despite much talk of a slump in the once-booming resource sector,
employment in mining was down just 12,800 on May last year.

"On the face of it, it seems quite resilient," said Besa Deda, chief economist at St George.

"Certainly the unemployment rate hasn't risen to levels that one would expect given the mix of negatives that have occurred so far," she added. "We think the RBA is on hold now and the next move in rates will be up, but not until next year."

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