(Bloomberg) -- Employment jumped and the labor force swelled in Australia’s western mining heartland, offsetting job losses in every other state, suggesting forecasts of a resource investment revival might be coming to pass.
In Western Australia, 13,800 jobs were added in June, the participation rose 0.3 percentage point and unemployment fell almost half a percentage point to 5.8%, data from the statistics bureau showed in Sydney Thursday. In contrast, New South Wales, the economy’s growth driver in recent years and Australia’s biggest state, shed 17,400 positions.
“The pickup in full-time hiring in Western Australia may be a sign that the trough in resource investment may soon come to an end,” said Tamara Mast Henderson, an economist at Bloomberg Economics. “There was less slack in Australia’s labor market in June, as indicated by a drop in underutilization. This adds to reasons the Reserve Bank of Australia is likely to leave its policy rate unchanged in August. We don’t expect any more easing this year.”
The RBA executed its first back-to-back interest-rate cuts in seven years as it redoubled efforts to drive unemployment down to 4.5%, the bank’s new estimate of the rate needed to reignite inflation. It’s betting that a combination of policy easing, government tax cuts, infrastructure investment, and firms upgrading and building new mines will reignite an economy that slowed sharply in recent quarters.
Rising Salaries
BHP Group and Rio Tinto (LON:RIO) Group, the world’s two largest miners, are among those with vast new operations under construction in Western Australia’s Pilbara region as they prepare to replace aging mines scheduled to shutter. Rising salaries in the state’s mining sector already reflect a tighter labor market, with some roles commanding higher wages than at the peak of the last mining investment boom, according to advisory firm BDO International Ltd.
Perth-based Fortescue Metals Group Ltd. has pledged project spending of about A$5.5 billion ($3.9 billion) on two new iron ore mines in Australia in the past 18 months, while BHP is developing the $3 billion South Flank project and Rio has sanctioned the $2.6 billion Koodaideri mine.
The Australian dollar climbed after the release and traded at 70.26 U.S. cents at 12:50 p.m. in Sydney. Money markets are pricing in about a 60% chance the central bank will cut rates by another quarter point in December. The cash rate is currently at a record-low 1%.
Thursday’s report also showed positive data on slack in the labor market: under-employment declined 0.4 percentage point to 8.2% and underutilization fell 0.3 point to 13.4%.
RBA Governor Philip Lowe’s (NYSE:LOW) lowering of estimated full employment in the economy follows in the footsteps of other developed-world counterparts, who’ve had to wait for their jobless rates to fall to exceptionally low levels to spur wage growth. Even then, it has proved a prolonged wait for it to feed into inflation.
Pushing down the jobless rate is likely to prove an uphill battle -- not least because so many additional people are entering the labor market. Meanwhile, debt-laden households have hunkered down and cut spending as they grapple with stagnant incomes and weakening house prices erode their wealth.
The labor market has held up surprisingly well even as the economy slowed sharply in the past 12 months. One explanation for the resilience is that much of the hiring is coming from government-related programs that are impervious to prevailing economic conditions.