Australia jobs bounce, but not enough to allay fears

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An improvement in Australia's employment in October after two months of negative growth will allay some fears about the labor market, but the outlook for jobs still looks far from healthy, analysts say.

The Australian economy added 24,100 jobs in October, better than the 22,500 forecast by Reuters, data from the Australian Bureau of Statistics (ABS) showed on Thursday. The jobless rate was 6.2 percent, unchanged from September.

The Australian dollar traded higher on the news, in sight of $0.86 after hitting a four-year low of $0.8565 on Wall Street, while Australian stocks reversed earlier losses.

The positive market reaction comes even as the reliability of the jobs numbers is in question. Australia's employment picture has been confusing at best, with the notoriously volatile data being revised repeatedly in recent months.

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An initial estimate from the ABS, for example, showed a record 121,000 increase in jobs in August. But after the latest revisions made this week, employment is now believed to have fallen by 8,900 in August and then another 23,700 in September.

"The new survey changes are only going to bring more uncertainty and constant revisions to the unemployment rate makes the data unreliable," Evan Lucas from IG said.

Beyond the hard numbers, the broader picture of the employment market remains weak, says Daniel Martin, an economist with Capital Economics.

"The main glimmer of hope is that the employment components of the PMIs (Purchasing Managers' Indexes) are pointing to stronger employment gains toward the end of the year. But even if there is an improvement in job creation, it will take some time for labor market slack to ease. Falling real wages also point to slack in the labor market," Martin said.

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According to Paul Bloxham, chief economist of HSBC Australia and New Zealand, Australia's labor market remains "loose," a symptom of an economy slowly rebalancing away from mining investment-led growth towards other sectors of the economy.

"The unemployment rate has been grinding slowly higher over 2014 due to weak employment gains that have not kept pace with growth in the labor force," he said.

Still, Bloxham remains positive on employment in the coming quarters, expecting the jobless rate to fall in 2015, helped by a weaker Australian dollar which should help to boost economic growth and hiring.

More importantly, he notes that a lower unemployment rate will likely to be a necessary condition for the Reserve Bank of Australia (RBA) to start lifting rates.

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"We still expect the next move from the RBA to be up, potentially around mid-2015, though clearly, further improvement in the labor market is needed for this to occur. We still see the RBA as highly unlikely to cut rates further," Bloxham added.

Analysts at Goldman Sachs are less sanguine, believing the sluggish job market will keep rates on hold for a considerable time to come.

"All up, the ongoing mix of gradually rising unemployment and sub-trend jobs growth underscores the degree of spare capacity in the Australian labor market," Goldman said in a note. "We expect this very benign inflation environment will allow for rates to remain on hold until fourth quarter of 2015."