Australian employment on surprise upward path

SYDNEY - Australia's unemployment rate unexpectedly fell to 5.2 per cent in November, matching a record low set in 1977 and raising the risk of wage inflation and higher interest rates.

Employment rose for a third straight month, data showed yesterday, contrary to expectations and a recent run of weak economic data that had prompted doubts about whether the central bank needed to maintain a tightening bias.

"There's a little bit of conflict with some of the other domestic demand indicators suggesting the economy's slowing," said Tom Kenny, senior economist at Nomura.

"The lower unemployment rates, the strong employment growth - if you can believe the employment numbers - is indicative of a very tight labour market, or something that's about to be very tight, which in time could put pressure on wages."

The jobless rate - seen as a more accurate labour market gauge given volatility in the employment series - had been expected to rise to a point to 5.4 per cent in November.

The October rate was the lowest since the monthly jobs series started in 1978, while the record low of 5.2 per cent was set in 1977 when the data was published quarterly.

Employment rose a seasonally adjusted 24,500, compared with expectations for a median 10,000 decline, building on the revised 110,000 jobs created in September and October.

Full-time employment rose by 28,900.

The participation rate of those in work or actively seeking employment was unchanged at 63.7 per cent.

The data didn't identify where new jobs were created but employment agencies have noted particular shortages in the business and medical services sectors.

Market expectations for Australian rate hikes have eased in recent months as data, such as falling home loans and building approvals plus a surprise fall in October retail sales, pointed to a soft patch in the economy.

"Fixed-interest markets have been speculating about cuts in early 2005. That is probably a bit premature with data like this," said Su-Lin Ong, senior economist at RBC Capital Markets.

Despite the drop in the unemployment rate there are few signs of wage pressures to trigger higher interest rates, although Treasurer Peter Costello warned if wage demands do increase because of lower unemployment it would make firms less competitive and put pressure on monetary policy.

"There's no reason why people can say that the Australian economy can't sustain a 5 per cent unemployment rate, but it won't sustain it if we have wages pressures building up," he said.

Costello has said the task was to get the jobless rate closer to 5 per cent once Parliament passes employment reforms.

Forward indicators of employment are still predicting a steady pace of employment growth, which could see the unemployment rate fall to a new record low in coming months.

The jobless rate has fallen substantially since hitting a peak of 10.9 per cent in December 1992.

The Reserve Bank of Australia left the cash rate unchanged at 5.25 per cent this week, marking 12 consecutive months with no changes in rates.

- REUTERS