Australia's bumper run of job creation has hit a dry patch, raising questions over the central bank's confidence in the labour market and whether it might be forced to cut interest rates again. Thursday's data from the Australian Bureau of Statistics showed a net 7,900 jobs were lost in January, when analysts had looked for a rise of around 15,000. This came on top of a fall of nearly 1,000 jobs in December.
All the decline last month came in full-time employment, which fell 40,600. The jobless rate ticked up to 6 percent, when analysts had expected a steady outcome of 5.8 percent. "The further fall in employment in January is probably just a continuation of the data moving back to reality after the unbelievable strength late last year," said Paul Dales, Chief Australia & NZ economist at Capital Economics.
"Even so, a renewed and sustained labour market weakening would unnerve the Reserve Bank of Australia (RBA)." The Australian dollar dipped nearly half a US cent to $0.7134 on the news, but has since recovered most of the losses. Interbank futures pared early losses as the market priced in a little more chance of a cut in interest rates. Currently, futures imply around a 50-50 probability of an easing in the 2 percent cash rate by May. Yet the modest employment declines came after two months of solid gains, where more than 100,000 jobs were created in November and October alone.
The RBA has cited the past strength of employment as a major reason for not cutting interest rates even as the global outlook was clouded by a slowdown in China and turmoil in financial markets. Indeed, even with the latest dip Australia still created a net 298,000 new jobs in the year to January. Annual employment growth held at a strong 2.6 percent, beating even that of the United States.
"The Reserve Bank won't be disheartened by the latest job market figures,"said Craig James, chief economist at CommSec. "The RBA looks more closely at longer-run trends. And certainly the Reserve Bank has been surprised at the strength of recent job market indicators."
Policy makers have confessed to being surprised by the strength given the economy was growing around a sub-par pace of 2.5 percent. Many felt the answer lay in the brisk growth of the service sector, which is more labour-intensive than mining or manufacturing. Hiring in services surged by more than 350,000 in the year to November, with healthcare alone accounting for 151,000. "Since the financial crisis, health has generated nearly one-third of jobs growth and around 40 percent of the increase in total hours worked in Australia," said Justin Fabo, a senior economist at ANZ.
He offered a laundry list of reasons for why that was likely to continue including an ageing population; more frequent use of health services by all age groups; rising incidence of chronic disease; increased spending on disability care and strong demand for child care. For its part, the RBA has stated it will be watching closely to see if employment sustained its outperformance and analysts suspect any turn to weakness could greatly add to the chance of a further cut in rates.
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