Australia's jobless rate surprisingly fell to the lowest in a year last month, reducing the likelihood that the Reserve Bank will cut interest rates again next month.
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Unexpected fall in jobless rate
Today's announcement of a fall in unemployment has come as a surprise to many analysts, BusinessDay's Chris Zappone reports.
Australia's unemployment level in April came in at 4.9 per cent, according to the Australian Bureau of Statistics. Economists had tipped the jobless rate to increase to 5.3 per cent from 5.2 per cent in March.
“It’s generally stronger than expected,” said RBC Capital Markets economist Su-Lin Ong. “You’ve got another reasonable gain in employment and while the previous month was revised down, the last couple of months have been decent.”
The economy added 15,500 jobs last month, whereas analysts had tipped that 5000 jobs would be shed. The net gain, though, was entirely the result of 26,000 part-time positions being created, with employers actually cutting 10,500 full-time roles in April.
The unexpected drop in the jobless rate is likely to cheer Treasurer Wayne Swan as he continues efforts to promote this week's federal budget. The budget is based on a jobless rate of 5.3 per cent by the end of June, rising to 5.5 per cent by June 2013.
Australia's jobless rate remains among the lowest for a rich nation. The US has 8.3 per cent out work, while 10.9 per cent in the eurozone are looking for work as are 8.3 per cent in Britain.
This is huge for RBA.Works STRONGLY against a June cut. Back to a line-ball call now.— Stephen Koukoulas (@TheKouk) May 10, 2012
The dollar jumped on the jobless rate reduction, adding half a US cent to trade to rise above the $US1.01 mark. Investors are betting that the better-than-forecast employment result reduces the need for the RBA to follow up with another interest rate cut when it meets on June 5. Stocks also rose modestly.
RBC's Ms Ong said the RBA would likely delay the next rate cut based on today’s jobs figures. She also said the market was anticipating too many rate cuts, prior to today's data release.
Financial markets, though, are still tipping the central bank will follow up last week's 50 basis-point rate cut next month. The chance of a further 25 basis-point reduction is about two-in-three, down from a 95 per cent likelihood before the jobs figures landed.
Ben Jarman, an economist with JPMorgan, expects the RBA won't cut rates again until August.
"The numbers continue to defy the broader vibe. We've been hearing about firms' uncertainty, difficult domestic conditions, and job shedding in a lot of sectors, but it's just not turning up in the unemployment rate," he said.
"I don't think the job market really turned upward in a dramatic way in April," Mr Jarman said. "But it does seem like the unemployment rate is proving hard to budge."
Employment Minister Bill Shorten welcomed the April jobs figures today, describing them as "good news" for Australia.
"Even the most trenchant critics of the government would have to acknowledge that an unemployment rate of 4.9 per cent is good news for the nation," Mr Shorten told reporters in Canberra.
Mr Shorten said the figures demonstrated the country's "strong economic fundamentals" and pointed to other major world economies where the unemployment rate was in double figures.
But the Employment Minister said that the government has been expecting the unemployment rate to increase in recent months and acknowledged that the "numbers are volatile."
He said the government recognised there was pressure on some parts of the Australian economy.
"We recognise that the news is not all uniformly good," he said.
"There are plenty of travails and difficulties ahead in the next 12 months."
'Pinch of salt'
While the headline figures were surprisingly strong, some economists queried whether they reflect the strength of the underlying economy.
“It’s a monthly number so we have to take it with a pinch of salt,” said ANZ senior economist Justin Fabo.
“We still think overall labour market conditions are soft, the job ads are telling us that,” Mr Fabo said.
“The participation is rate is down over the year,” he said. “Some of the fall in unemployment rate is related to the structural change story.”
Companies reporting job cuts in recent months include ANZ, Westpac and Optus, while food producer Murray Goulburn today announced it plans to shed 301 positions.
The state-by-state jobless rates may also baffle some commentators.
Despite a slew of job losses in the manufacturing sector lately, the unemployment rate in Victoria plunged last month to 5.3 per cent from 5.8 per cent in March, seasonally adjusted, the ABS said.
New South Wales, the most populous state, saw the jobless rate tick higher to 4.9 per cent from 4.8 per cent in March.
ANZ's Mr Fabo dubbed the 23,000 jobs created in Victoria ‘‘pretty unbelievable’’ given other reports on the health of the state’s economy.
In Western Australia, the jobless rate slid to 3.8 per cent from 4.1 per cent over that time, while in Queensland, it dropped to 5.1 per cent from 5.5 per cent, the ABS said.
In South Australia the unemployment rate was steady at 5.2 per cent over the two-month period, while in Tasmania it soared to 8.3 per cent in April from 7 per cent in March, the ABS said
Citi chief economist Paul Brennan said structural changes in the economy are making it more difficult to grasp labour market dynamics.
“A lot of people in hospitality in retail are working multiple jobs,” he said. “They will be working a couple of hours with one employer and a couple of hours with another employer.’’
‘‘It’s getting harder to read exactly where the labour market is,’’ he said.
“But looking at recipients on Newstart Allowances, that hasn’t deteriorated in a meaningful way,” Mr Brennan said. “There is no indication of a massive groundswell of people coming on to unemployment benefits.”
The ABS report also showed aggregate hours worked by employed people in Australia rose by 0.4 per cent in April, seasonally adjusted, after a fall of 0.7 per cent in March.
Aggregate hours worked in April 2012 were 2.6 per cent higher than in April 2011, after a rise of 1.4 per cent between April 2010 and April 2011.
Helping the unemployment rate drop was a fall in the ratio of people of working age actually looking for work.
The April participation rate was 65.2 per cent, compared with a downwardly revised 65.3 per cent in March.The participation rate was forecast to be 65.4 per cent.
The revisions by the ABS to March figures do not help explain part of the drop in the headline unemployment rate.
For instance, the net job creation in March was trimmed to 37,600 from 44, 000. Most of that reduction was accounted for a drop in the number of full-time positions created to 10,600 from an inital report of 15,800.
BusinessDay, with Judith Ireland in Canberra and AAP, Reuters