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Australia employment softer but not stalled

SYDNEY: Australian employment growth pulled back sharply in January after a solid rise in December, continuing a string of volatile economic figures at the start of the New Year.

Analysts said it was too early to talk of a slowing in economic growth, but recent soft data did suggest the economy has stopped accelerating from its recent brisk pace.

The unexpected drop also gave some fuel to those who criticised the unexpectedly large interest rate rise by the Reserve Bank last week of 50 basis points.

Official figures on Thursday showed employment in January fell by 27,600 after rising a hefty 55,800 in December. Forecasts had been for an increase of 10,000.

The labour force figures are notoriously volatile, and after several strong months that have pushed the jobless rate to decade lows, analysts said further falls in employment would have to be seen before concluding that demand for labour has peaked.

It did follow other soft figures this week including job advertisements and a dip in business confidence.

RBC Dominion Securities senior economist Su-Lin Ong said the unexpected drop in January should be viewed as a correction to the jump in December and didn't signal weakness in the labour market.

"Even if the economy is coming off the boil, the labour market is a lagging indicator of activity and unlikely to soften until mid-year at the earliest," she said.

UNEMPLOYMENT STILL FALLING

Despite the fall in overall jobs, the unemployment rate also fell to 6.8 percent from 7.0 percent in December. This unusual combination was caused by a decline in the number of people looking for work, as the participation rate fell to 63.2 percent from 63.6 percent.

The much weaker than expected employment figures gave Australian dollar bears a fresh excuse to sell the currency, pushing the dollar down to a low of US$0.6325/30 from $0.6353/58 before the data came out.

The dollar had edged up to $0.6330/35.

Analysts said the employment figures have been volatile in recent months, with large swings in participation affecting the unemployment rate.

Employer hiring traditionally lags economic growth, so most analysts expect the strength in activity over the second half of 1999 should underpin further employment gains in coming months.

Prime Minister John Howard was unfazed by the soft January report, saying the trend for employment was still very strong.

"We have a much stronger employment scene in this country now than we had four years ago," Howard told reporters.

Analysts said the decline had no implications for monetary policy, which was likely to be on hold for the next month or two after the Reserve Bank raised rates to 5.5 percent last week.

Wages figures on Friday will give a clue on the likely path of inflation, with earnings forecast to rise 1.0 percent in the November quarter. But the annual rate would still be a subdued 2.6 percent.

BT Funds Management senior economic adviser Chris Caton said any further weak economic data would merely limit the amount of tightening ahead, and shouldn't cast doubt on last week's rate rise.

"We have pencilled in a further quarter-point hike in May, mainly on the basis that the window of opportunity would then slam shut until the smoke following the introduction of tax reform had cleared.

"We will stick with this call for a while yet," he said. -Reuters