Australia’s Jobs Drop Underscores Challenge for Abbott
Australia recorded its first back-to-back jobs decline in more than two years, sending the local currency lower and underscoring the challenge for Prime Minister-elect Tony Abbott to boost the nation’s economy.
The number of people employed fell 10,800 in August from the previous month, when it dropped a revised 11,400, the statistics bureau said in Sydney. That compares with the median estimate for a 10,000 increase in a Bloomberg survey of 28 economists. Unemployment rose to a four-year high of 5.8 percent, from 5.7 percent in July.
“It’s softer than expected and disappointing,” said Justin Smirk, senior economist at Westpac Banking Corp. in Sydney. “It’s a sign the economy is not firing on all cylinders and there’s still a need for the Reserve Bank to lower rates.”
Labor market weakness complicates the task for Abbott’s coalition, which won office Sept. 7 pledging to lower taxes and cut red tape in order to spur the $1.5 trillion economy as a China-led mining investment boom crests. The Reserve Bank of Australia forecasts a softer labor market and below-trend growth and reduced the overnight cash-rate target by 2.25 percentage points since late 2011, including a quarter-point cut last month to a record-low 2.5 percent.
“We’ve had confirmation the economy is growing a little below trend,” Stephen Koukoulas, managing director of Canberra-based Market Economics Pty., who predicted a 10,000 drop, said before the release. “The trend softness in the labor market continued leading up to the election.”
The Australian dollar fell to 92.61 U.S. cents at 1:31 p.m. in Sydney from 93.42 cents before the report. Traders are pricing in a 40 percent chance the RBA will cut rates by the end of this year, compared with 38 percent before the release, according to interest-rate swaps data compiled by Bloomberg.
The number of full-time jobs declined by 2,600 in August, and part-time employment fell by 8,200, today’s report showed. Australia’s participation rate, a measure of the labor force in proportion to the population, dropped to 65 percent in August from 65.1 percent a month earlier, it showed.
The fall in participation, “reflecting a combination of demographic forces as the population ages and more retire and workers leaving the job market after becoming disillusioned in the search for a job, has clearly had the effect of understating the true weakness in the jobs market,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd. If the participation rate was still at its June 2009 level, the unemployment (AULFUNEM) rate would be 6.5 percent, he said.
National Australia Bank Ltd.’s business confidence index released this week showed a slump in employment conditions in August to the weakest since May 2009, and capacity utilization remained subdued. Australia & New Zealand Banking Group Ltd.’s job ads series fell 2 percent in August, the sixth monthly decline. The nation expanded 2.6 percent in the second quarter from a year earlier, and the RBA this month said it expects growth will be “a bit below trend” in the near term “as the economy adjusts to lower levels of mining investment.”
Industry has been squeezed by a currency that held above $1 from mid-June last year to May 9, the longest stretch above parity with the U.S. dollar since the Aussie was freely floated in 1983. The local dollar declined 12 percent in the three months through June.
Elders Ltd. said this week it will cut about 10 percent of its workforce as the Australian agricultural company reorganizes and reduces debt. Newcrest Mining Ltd., an Australian gold producer, said in July it plans to cut staff and contractors at its Telfer mine as part of an operational review prompted by falling prices.
Abbott said in an Aug. 29 interview that Australian manufacturers have to find a way to cope with a “market-driven currency.” He told reporters the previous week that his government wouldn’t wave a “blank check” at automakers.
Ford Motor Co. announced in May it would end production in the country after nine decades, with the loss of 1,200 jobs. General Motors Co.’s Holden division said in April it will cut about 500 positions in Australia, citing the currency’s strength.
Since Labor won office in November 2007 through May this year, a net 962,800 jobs were created, according to data compiled by Bloomberg from labor force by industry figures. While the resources-investment boom has powered economic growth, the 122,300 mining jobs created is less than half the 303,500 in healthcare and social assistance roles. The manufacturing industry lost 112,400 workers over the period.
Elsewhere, New Zealand’s central bank said it expects to raise interest rates next year as the economy strengthens and inflation picks up after leaving the official cash rate at 2.5 percent. The Bank of Korea held its key rate steady, while the Philippines’ central bank is also likely to keep borrowing costs unchanged later today, economists surveyed by Bloomberg predicted.
Euro zone industrial production data for July is scheduled for release. In the U.S., initial jobless claims climbed 7,000 to 330,000, according to the median estimate of economists surveyed by Bloomberg.
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