Jobs grow unexpectedly

Australia unexpectedly added jobs for a sixth month in February, keeping the unemployment rate at a 28-year low of 5.1 per cent and suggesting the central bank may raise interest rates for a second time this year.

The 10-year bond yield rose to a seven-month high after a report showed the economy added 20,000 positions last month. That capped the longest run of jobs growth in 4 1/2 years, the Australian Bureau of Statistics said in Sydney yesterday.

Rising employment will add to the central bank's concern that skill shortages may stoke wages and inflation. Reserve Bank of Australia Governor Ian Macfarlane last week increased the cash rate target a quarter point to 5.5 per cent, a four-year high, saying 14 years of expansion had left the economy with labor shortages.

"This reinforces the case for another rate rise in April,"

Besa Deda, an economist at Commonwealth Bank of Australia, the nation's second-largest lender, said.

"There is the risk of higher inflation from skill shortages, which is a concern for the central bank," said Deda, who correctly forecast the 20,000 jobs gain in February. The median forecast in a Bloomberg News survey of 21 economists was for unchanged employment.

Employment has risen 229,900 between September and February, the largest increase in jobs in any six-month period since reporting began in 1978.

Australia's population is about 20 million, 9.9 million of whom are in the workforce.

"The Reserve Bank says the economy is growing faster than the official figures show - this will give more substance to that view," Rob Henderson, head of market economics at National Australia, said. "If we get more strong numbers like today, the bank will go in April."

Macfarlane and his board next decide on rates on April 5.

The A$798 billion economy added 37,900 full-time jobs and lost 17,900 part-time positions in February.

Fourteen of 21 economists surveyed by Bloomberg News after last week's rate increase had forecast higher rates by June.

Rising employment has spurred wages growth, which accelerated in the fourth quarter. The wage price index, a measure of hourly rates of pay, rose 1 per cent in the three months ended December 31 from 0.9 per cent in the third quarter.

The increase in employment goes against other reports suggesting the economy is slowing.

Business confidence fell in February and companies said they had fewer new orders. National Australia Bank cut its growth forecast for 2005 to 2.5 per cent from 2.75 per cent.

A Westpac report this week said consumer confidence in March plunged 16.6 per cent, the largest drop in the 30-year history of the series.

- BLOOMBERG