HOBART, Oct 9 (Reuters) - Australia's labour market could be softer than suggested by its low unemployment rate in part due to surprising weakness in home building, a top central banker said on Tuesday, citing this as one reason for a recent cut in interest rates.
Giving a speech in Tasmania, Reserve Bank of Australia (RBA) Deputy Governor Philip Lowe said a pick up in home construction, and employment, would be welcome in coming months as hiring in the once red-hot mining sector cooled.
"This weakness in the construction sector, particularly of new homes, has been one of the bigger surprises in the economic outcomes over recent times," said Lowe.
"Looking forward, a pick-up in construction activity is one of the factors that could provide an offset to the eventual moderation in the current very high level of investment in the resources sector."
When the central bank cut interest rates a quarter point to 3.25 percent last week it noted that the peak for mining investment could come next year, somewhat earlier than previously thought.
Since miners have been big employers in the last couple of years, any pullback in this sector would require increased hiring elsewhere if unemployment was not to rise.
Mining giant BHP Billion on Tuesday said it plans to cut an undisclosed number of jobs as it copes with weaker demand and prices, higher costs and a strong local dollar.
Australia's jobless rate is currently low at 5.1 percent and has been around there for much of the past two tears.
However, Lowe noted that the unemployment rate had been held down by a decline in labour force participation, or the share of the working-age population either with a job or looking for a job. At 65.0 percent, this was around half a percentage point lower than the average of the past five years.
One factor in this decline could be weakness in the construction industry, where employment has fallen by 70,000 over the past 12 months. Many of these workers identified themselves as self-employed and were not recorded as unemployed in the official labour survey.
"If this were the case it would suggest that there is a bit more capacity in the labour market than suggested by the unemployment rate alone," said Lowe.
Another factor could be the faster pace of turnover in the jobs market seen in recent years. Lowe suggested some workers that had left their jobs might have decided not to re-enter the labour market immediately, perhaps choosing to enter training or education instead.
"With the peak in mining investment now coming into view, it is not surprising that attention is turning to the questions of what forms of activity might pick up, where the future jobs might come from, and what combination of interest rates and exchange rates might keep the overall economy on an even keel," added Lowe.
(Reporting by Wayne Cole; Editing by Lincoln Feast)
Keywords: AUSTRALIA ECONOMY/CENBANK