(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%.
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 add stimulus, an effort frustrated by a focus on returning the books to the black.
Just an hour prior to the release, Treasurer Josh Frydenberg announced an improved budget deficit of just A$690 million ($468 million) in the fiscal year that ended June 30. That dashed expectations of a surplus which may have allowed him to say the government had met its election promise and was now prepared to boost spending to support growth.
Thursday’s jobs report showed two key indicators of slack in the labor market worsening. 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%.
“Stronger wage growth is unlikely for the foreseeable future,” said Callam Pickering, an economist at global jobs website Indeed, who previously worked at the central bank. “Rising unemployment is a negative for wages and inflation and justifies the Reserve Bank’s stance on rates. A rate cut at either their October or November meetings seems all but certain.”
The Aussie dollar fell after the report, buying 67.85 U.S. cents at 12:48 p.m. in Sydney from 68.13 before the data.
New Normal
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 (NYSE:JPM) & Co.’s Sally Auld, think Lowe will move next month and 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 move then.
Meantime, Commonwealth Bank of Australia, the nation’s largest lender, said the government’s improved budget position provides scope for Frydenberg to help the central bank. With a potentially larger surplus also set for 2019-20, there were several policy measures that could compliment easier monetary policy, said Belinda Allen, a senior economist at Commonwealth.
“The first would be to bring forward shovel-ready infrastructure projects. RBA Governor Lowe has made this point repeatedly,” she said. “The second policy option would be to bring forward the tax cuts scheduled for 1 July 2022.”