Australia’s ‘smoking gun’ unemployment sets up another rate cut

SYDNEY: Australia’s jobless rate unexpectedly climbed in August as the labor force swelled to a fresh record, signalling additional labour-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 yesterday. The 34,700 increase in jobs for the month was swamped by the seemingly inexorable rise in the participation rate to 66.2%.

“Today’s labor force data is the smoking gun that will force the RBA’S hand,” said Gareth Aird, senior economist at Commonwealth Bank of Australia, who brought forward his rate-cut call by a month to October. “From a monetary policy perspective, the level of labour market slack trumps the rate of employment growth.”

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 join the stimulus push, an effort frustrated by a focus on returning the budget to the black.

Just an hour prior to the release, Treasurer Josh Frydenberg announced an improved deficit of just A$690mil in the fiscal year that ended June 30.

That dashed expectations of an earlier-than-forecast surplus which may have allowed him to declare the government had met its election promise and was now prepared to boost spending. The Aussie dollar fell after the jobs data, buying 67.87 US cents at 2:50 pm in Sydney from 68.13 before its release.