Surprise jobs fall breaks streak

SYDNEY - The Australian economy shed a net 42,300 new jobs in September, breaking a 12-month streak of gains and dragging the unemployment rate up from 29-year lows.

The timing of the fall in jobs was a major surprise to analysts used to strong results after months of gains and argued against the need for higher interest rates, at least in the near term.

"It does take a lot of pressure off the Reserve Bank," said Stephen Roberts, research director at Grange Securities. "It's hard to get persistent inflation without wages pressure, and hard to get wages pressure with employment easing."

Just this week the Reserve Bank of Australia warned it was watching closely to see if higher energy prices led to higher wage claims, and so to accelerating inflation.

One worry was that a further drop in the unemployment rate to under 5 per cent would force the central bank to respond. Thus September's rise in the jobless rate to 5.1 per cent, from August's 29-year low of 5 per cent, was likely to be a relief to policy makers, if not for job seekers.

"I think the bank [RBA] will welcome that with open arms and it will further confirm their idea to sit on the sidelines at this stage and ride out the blip in oil prices," said Jarrod Kerr, an economist at JP Morgan.

Record high petrol prices were expected to lift the consumer price index for the third quarter. Analysts suspect year-on-year inflation could easily top the central bank's 2 to 3 per cent target range, a result which could yet force it to re-adopt a tightening bias.

"Today's soft employment result works against the end-year RBA hike we have had pencilled in," said Scott Haslem, chief economist at UBS.

"Nonetheless, we continue to look for the RBA to undertake some precautionary tightening over coming months, with the upcoming Q3 inflation data key to the timing of any move."

Concerns about inflation, both in Australia and the United States, have seen financial markets rapidly price in a much greater risk of another interest rates rise. The unexpected weakness in the jobs data saw markets unwind some of that risk and both interest rate futures and bonds rallied.

The diminished prospects of higher interest rates hurt the Australian dollar, however, while the stock market was dragged down by weakness on Wall Street.

- REUTERS