Australia Cuts Jobs as Stimulus Wanes, Easing Pressure on Rates

By Jacob Greber

Sept. 10 (Bloomberg) -- Australian employment fell in August by almost twice as much as economists estimated, driving down the nation’s currency on expectations the central bank won’t raise interest rates anytime soon.

The number of people employed dropped 27,100 from July, when it rose a revised 33,700, the statistics bureau said in Sydney today. The median estimate of 21 economists surveyed by Bloomberg was for a decline of 15,000. The jobless rate held at 5.8 percent.

Falling employment adds to signs the economy may slow in coming months after reports yesterday showed retail sales unexpectedly fell in July and home-loan approvals ended a record nine-month run of gains as the effect of government stimulus spending wanes. Traders today pared bets on when central bank Governor Glenn Stevens will raise borrowing costs from a half- century low of 3 percent.

“There now is no way in the world that the Reserve Bank is going to hike in October,” said Rory Robertson, an economist at Macquarie Group Ltd. in Sydney. “A pre-Christmas tightening will require more good news on the jobs front.”

The Australian dollar fell to 85.91 U.S. cents at 12:47 p.m. in Sydney from 86.21 cents just before the report was released. The two-year government bond yield dropped 13 basis points to 4.25 percent. A basis point is 0.01 percentage point.

Investors also cut bets on the size of future interest-rate increases, according to a Credit Suisse Group AG index based on swaps trading. Stevens will raise the benchmark rate by 162 basis points over the next 12 months, the index showed at 12:47 p.m. in Sydney, down from 178 basis points before the report.

Full-Time Jobs

Full-time jobs dropped 30,800 in August as companies including BHP Billiton Ltd. cut workers amid the global recession that has eroded demand for exports of iron ore and coal. Part-time work increased 3,800.

Today’s report supports the government’s view that it is too early for it to wind back A$22 billion ($19 billion) in spending on new roads, railways, ports and schools.

Opposition Liberal Party leader Malcolm Turnbull, who has criticized the amount of government stimulus, will promise to cut spending by A$14 billion a year in his bid to become prime minister at an election due next year, the Australian newspaper reported today.

“We need to continue economic stimulus to support jobs during these difficult days,” countered Deputy Prime Minister Julia Gillard in Canberra today. “The full impact on employment of the global recession will take some time” to emerge. “Unemployment will continue to rise.”

Japanese Demand

In a further sign that global stimulus measures may be losing their impact, a released today in Tokyo showed Japanese machinery orders fell in July by more than economists forecast, sliding 9.3 percent from June. Japan was Australia’s largest trading partner last year.

The drop in employment may also erode consumer spending that helped Australia’s economy expand in the second quarter at the fastest pace in more than a year. Gross domestic product gained 0.6 percent in the second quarter from the previous three months, when it grew 0.4 percent.

Retail sales fell 1 percent in July from June, when they slid 1.4 percent, the bureau of statistics said yesterday. Economists forecast a gain of 0.5 percent. Home-Loan approvals dropped 2 percent.

Retail sales and home-loan approvals had been climbing since late last year, driven by A$20 billion in government cash handouts to consumers and increased grants to first-time home buyers of as much as A$21,000.

‘No Justification’

“There is absolutely no justification for expectations of near-term tightening by the Reserve Bank,” said Annette Beacher, an economist at TD Securities Ltd. in Singapore. Falling retail sales, home loans and employment “cannot be glossed over.”

Domestic demand has been stoked by central bank Governor Glenn Stevens’ decision to slash the overnight cash rate target by 4.25 percentage points between September 2008 and April this year.

Stevens left the benchmark unchanged last week for a fifth month and signaled his next move will be to increase borrowing costs from their “emergency” setting.

Companies shedding staff include BHP Billiton. The world’s largest mining company said on Aug. 25 it will cut 70 jobs at its Mt Keith nickel project in Western Australia. Huntsman Corp., a U.S.-based chemical maker, said this week it will close a plant in Melbourne, shedding 325 jobs.

The participation rate, which measures the labor force as a percentage of the population aged over 15, fell to 65.1 percent in August from 65.3 percent, today’s report showed.

Without the fall in the participation rate, the jobless rate would have risen to 6.2 percent, TD Securities’ Beacher said.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net