Rate rise fears in Australia as job market sizzles

SYDNEY - Australian employment climbed five times more than economists expected in June as building companies hired workers for mining and energy projects, boosting expectations the central bank will raise interest rates again this year.

The Bureau of Statistics said yesterday employment rose 52,000, the biggest gain in almost two years, after gaining a revised 47,700 in May. The jobless rate remained at 4.9 per cent. Bond yields and the Australian dollar surged after the report.

Mining companies are expanding to meet increased Asian demand and state governments are building dams, roads and power stations.

The competition for skilled staff has fuelled record wage increases, which prompted the Reserve Bank of Australia to raise interest rates in May to stem inflation. Most economists expect another rate increase as early as next month.

"This points to another rate rise next month. It's hard to see the Reserve Bank doing anything else," said Michael Blythe, chief economist at Commonwealth Bank of Australia in Sydney.

"This is an exceptionally strong labour market and it tells you something about the economy. Even though wages look inflation-friendly at the moment, the risks are only building."

The number of full-time jobs surged 24,400 in June while part-time employment rose 27,600. About 10.2 million of Australia's 20.6 million people are employed.

Fifteen of 25 economists surveyed by Bloomberg News on June 30 expect the bank will raise borrowing costs again this year. Only seven expect that increase in the third quarter.

"Businesses have been reporting that lack of suitable labour was a bigger constraint on their activities than more traditional concerns about the adequacy of demand or sales," the central bank said in its quarterly statement on monetary policy in May.

Wages grew 4 per cent in the first quarter from a year earlier, just below the record 4.2 per cent pace in the fourth quarter. A report on second-quarter wages will be released on August 16.

The annual inflation rate was 3 per cent in the first quarter, at the top of the Reserve Bank's target range of between 2 per cent and 3 per cent. The Government will report second-quarter inflation on July 26.

Surging Asian demand for commodities and fuel has boosted prices, prompting mining and energy companies to expand.

Mining investment jumped 91 per cent in the first quarter from a year earlier, the Government said in June.

Coal mining expansion is driving jobs growth in Queensland. BHP Mitsui Coal has commissioned Leighton to build a A$330 million mine, and QCoal is developing the Sonoma mine, which the Government estimates will create 200 jobs.

Queensland's top 400 privately owned companies expect almost 8 per cent growth in their full-time staff over the next 12 months, according to an annual survey by consulting company BDO Kendalls.

Australia's governments are also hiring more hospital workers and teachers. The health and community services sector has added 80,000 jobs in the past year, according to ABN Amro Australia.

Of the 1.3 per cent growth in employment in the year to May 31, the public sector accounted for 1.2 percentage points, according to Westpac.

Construction was the second-largest contributor, adding 0.3 percentage points, while retailers subtracted 0.5 percentage points.

The economy expanded 0.9 per cent in the three months to March 31 from the previous three months, fuelled by a rebound in consumer spending. The 3.1 per cent growth rate from a year earlier was the fastest in almost two years.

Australia's participation rate, which measures the labour force as a percentage of the population aged over 15, rose 0.3 percentage points to 64.8 per cent in June.

- BLOOMBERG