(Bloomberg) -- Australia’s jobless rate unexpectedly climbed in August as the labor force swelled to a fresh record, signaling additional labor-market slack that sets the scene for further easing by the central bank.
Unemployment climbed to 5.3%, the highest level in a year, and above the 5.2% forecast by economists, data from the statistics bureau showed in Sydney Thursday. The 34,700 increase in jobs for the month was swamped by the seemingly inexorable rise in the participation rate to 66.2%.
“Today’s labor force data is the smoking gun that will force the RBA’s hand,” said Gareth Aird, senior economist at Commonwealth Bank of Australia, who brought forward his rate-cut call by a month to October. “From a monetary policy perspective, the level of labor market slack trumps the rate of employment growth.”
The result is the wrong direction for a Reserve Bank trying to push down unemployment and revive inflation that’s lain dormant for almost half a decade. Governor Philip Lowe has lowered the cash rate to 1% to support economic growth and is urging the government to join the stimulus push, an effort frustrated by a focus on returning the budget to the black.
Just an hour prior to the release, Treasurer Josh Frydenberg announced an improved deficit of just A$690 million ($468 million) in the fiscal year that ended June 30. That dashed expectations of an earlier-than-forecast surplus which may have allowed him to declare the government had met its election promise and was now prepared to boost spending.
The Aussie dollar fell after the jobs data, buying 67.87 U.S. cents at 2:50 p.m. in Sydney from 68.13 before its release.
What Bloomberg’s Economists Say
“We don’t expect a cut from the RBA in October. It takes time to show progress in aggregate. What’s more, the continued increase in participation, in combination with strong hiring momentum, bolsters household incomes.”
-- Tamara Mast Henderson, EconomistClick here for the full report
Thursday’s jobs report showed deterioration in two key indicators of labor-market slack. The underemployment rate climbed 0.1 percentage point to 8.6% and underutilization -- the sum of the unemployment and underemployment rates -- advanced by the same amount to 13.8%.
Lowe earlier this year reduced the estimated level of full employment in the economy to 4.5% from around 5%, and cited the lower figure as justification for rate cuts in June and July. Money markets and economists expect him to ease twice more to 0.5%, a level that would be close to the lower bound of policy and open the door to unorthodox measures.
Two of the nation’s most-watched economists, Westpac Banking Corp.’s Bill Evans and JPMorgan Chase & Co.’s Sally Auld, also think Lowe will move next month -- and then again in February. The governor is due to speak Tuesday in an address titled “An Economic Update” and speculation is mounting that he could signal an imminent rate cut then.
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