Employment in Australia is headed for the biggest annual increase on record, boosting prospects of an acceleration in wage gains that forces the central bank to resume raising interest rates.
Payrolls soared by 366,000 in the first 11 months of this year to 11.4 million, the most since records began in 1978 and 27,000 more than the previous high in 2006. The jobs data released yesterday contrasted with a report last week showing growth in the third quarter was the slowest since the end of 2008.
“Labor statistics are probably the best guide to current conditions in the economy,” said Paul Bloxham, chief economist at HSBC Holdings Plc in Sydney and a former central bank official. “One only needs to look back to the last time inflation got above the target band to find that the best real- time indicator of what was going on was the labor market.”
The Reserve Bank of Australia could enter 2011 with an economy nearing full employment, which may help tip what policy makers have called a “finely balanced” debate in favor of those urging tighter policy. Governor Glenn Stevens has espoused preemptive moves, including a Nov. 2. rate boost, saying central bankers rarely regret lifting borrowing costs too soon.
“We expect that the unemployment rate will fall further in the next few months,” Bloxham said. “As a result, rates will need to rise further, and we expect multiple hikes next year.”
Rate Expectations
Investors are betting there is a 58 percent chance the central bank will raise rates by a quarter percentage point in May, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. That’s the first month next year in which rate-increase expectations are greater than 50-50.
In a Dec. 7 statement, Stevens said that “after the significant decline last year, growth in wages has picked up somewhat, as had been expected. Some further increase is likely over the coming year.”
Payrolls gained 54,600 in November from a month earlier, the statistics bureau said in Sydney yesterday, more than double the median forecast for a 20,000 increase in a Bloomberg survey of 26 economists. The jobless rate fell to 5.2 percent from 5.4 percent.
The Australian dollar was little changed today, trading at 98.29 U.S. cents at 12:28 in Sydney. Last month, the currency reached parity with its U.S. counterpart. Australia’s S&P/ASX 200 Index of stocks was little changed at 4,738.8 after closing yesterday at the highest level in about a month.
Full-Time Jobs
The employment report showed the number of full-time jobs advanced 55,100 in November and part-time employment was little changed, slipping by 400. Australia’s participation rate, which measures the labor force as a percentage of the population over 15 years old, increased to a record 66.1 percent in November from 65.9 percent a month earlier, it showed.
The data are “consistent with a very tight labor market” and there is a risk unemployment will fall quickly through 5 percent, a level that in the past has been accompanied by accelerating wage pressure, said Stephen Roberts, a senior economist at Nomura Australia Ltd.
“The RBA will return to hiking the cash rate earlier than the market is currently allowing,” Roberts said, predicting a quarter-point increase to 5 percent in March. The RBA’s next meeting on borrowing costs is scheduled for Feb. 1.
Employment is escalating as energy and resources companies increase investment and hiring to meet demand from China.
Resources Boom
Yesterday’s report showed unemployment fell to 4.5 percent in Western Australia, site of Chevron Corp.’s A$43 billion ($42 billion) Gorgon liquefied natural gas project, and 5.5 percent in Queensland, where BG Group Plc will begin building a $15 billion LNG venture, generating 5,000 construction jobs.
BG, Chevron, Royal Dutch Shell Plc and ConocoPhillips are among energy companies investing about A$200 billion in proposed LNG projects in Australia.
The hiring surge threatens to boost inflation, which the central bank aims to keep in a range of 2 percent to 3 percent. The consumer price index in the third quarter rose 2.8 percent from a year earlier, a government report showed Oct. 27.
The central bank has raised its overnight cash rate target seven times since October 2009, in contrast with the U.S. Federal Reserve’s policy of a benchmark rate near zero since December 2008. That divergence has contributed to a 10 percent increase in the local dollar versus the U.S. currency this year.
‘Modest’ Move
Assistant RBA Governor Philip Lowe, in a speech two days ago in Sydney, said policy makers’ most recent rate increase was an “early and modest adjustment” aimed at averting “uncomfortably high” inflation and avoiding a “more substantial increase in interest rates later on.”
Australian wages rose 3.5 percent in the third quarter from a year earlier, the most in a year, as salaries in private industry outpaced government pay gains for the first time since the start of the global financial crisis.
Nomura’s Roberts said the RBA would be “rather uncomfortable” with wage inflation rising to 4.5 percent, a level that might be reached next year on the current trajectory. (Bloomberg)
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