Australian Unemployment Jumps to 10-Year High; Aussie Drops
Australia’s unemployment rate climbed to the highest level in more than 10 years in January, spurring traders to pare bets on an interest-rate increase and sending the Aussie to its biggest drop in almost three weeks.
The jobless rate rose to 6 percent from 5.8 percent, the statistics bureau said in Sydney. The median estimate was an increase to 5.9 percent in a Bloomberg News survey of economists. The number of people employed fell by 3,700.
The softer-than-expected jobs report damped expectations the Reserve Bank of Australia will switch to tighter policy amid surging property prices, rising building approvals and a forecast acceleration in growth and inflation. Toyota Motor Corp., General Motors Co. and Ford Motor Co. have said they’re closing plants and shedding jobs in Australia as high production costs and a strong currency render them uncompetitive.
“While some may argue that employment is a lagging indicator, we would also suggest this print will be a negative for household income, sentiment and thus spending,” said Justin Smirk, a senior economist in Sydney at Westpac Banking Corp., which forecast the 6 percent unemployment rate. “In the details there is no silver lining.”
The Australian dollar fell to 89.43 U.S. cents at 3 p.m. in Sydney from 90.27 cents before the data’s release. Bets on how much the RBA will add to its cash rate in the next 12 months fell to 11 basis points, from 18 basis points yesterday, a Credit Suisse Group AG index based on swaps data showed.
The number of full-time jobs declined by 7,100 in January, and part-time employment rose by 3,400, today’s report showed. Australia’s participation rate, a measure of the labor force in proportion to the population, was unchanged at 64.5 percent in January from a revised figure a month earlier, it showed.
The RBA cut the overnight cash-rate target by 2.25 percentage points between late 2011 and August to a record-low 2.5 percent to help offset the currency and spur industries outside mining, where an investment boom is waning.
Unemployment jumped to 5.1 percent in the resource-rich state of Western Australia, from 4.6 percent a month earlier. It jumped to 6.1 percent from 5.9 percent in Queensland. In the manufacturing hub of Victoria, joblessness climbed to 6.4 percent from 6.2 percent in December.
About 50,000 jobs in Australia’s auto and parts industry are in jeopardy after Toyota on Feb. 10 followed Ford and GM in announcing plans to quit manufacturing in the country.
The decisions pose a challenge for Prime Minister Tony Abbott, who won an election last September pledging to restore confidence in the economy. The country’s main car plants are sited in districts where the jobless rate is already on par with the euro zone’s, and a waning mining boom is unlikely to soak up the additional labor.
“Over 60,000 full-time jobs have been lost since the Abbott government was elected,” opposition leader Bill Shorten told reporters in Canberra today. “What is the jobs plan of the Abbott government? What are they doing to stop the tens of thousands of jobs that are either going overseas or just disappearing?”
Consumer confidence fell 3 percent this month to the lowest level since July, a private report showed yesterday.
Unemployment in Melbourne’s Brimbank-Sunshine region adjacent to Toyota’s Altona plant and in the city’s Broadmeadows district that houses Ford’s main production lines was about 12 percent in September, according to government data. In the Adelaide suburb of Elizabeth where GM’s Holden has its main plant, it was 22 percent.
Manufacturing in Australia has been hurt by a commodities boom that helped drive the value of the local currency to $1.11 in July 2011, the highest level in the 30 years since exchange controls were dropped. While the Australian currency has since depreciated to about 90 U.S. cents, it’s still higher than at any point in the 18 years running up to 2007.
GM estimates it costs about A$3,750 more to produce a car in Australia than elsewhere. Ford said last May that its costs in the country were double those in Europe and four times those of its Asian divisions. The two carmakers will close their local plants in 2017 and 2016 respectively.
Even so, the RBA last week raised its inflation and growth forecasts, reflecting the currency’s decline from its peak last year, and reiterated its shift to a neutral policy stance. Low interest rates have driven up home prices and spurred a pickup in approvals for residential construction.
Sydney home prices jumped 13.8 percent in the fourth quarter from a year earlier, followed by Perth’s 8.7 percent, government data showed this week.
“For the RBA, these numbers are probably not a surprise,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada in Sydney. “What it does suggest is that a market that’s starting to think about the possibility that the next move is up, and we may get a lift in cash rates later this year, these numbers argue strongly against that.”
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