By Jacob Greber
Nov. 12 (Bloomberg) -- Australian employers unexpectedly added workers in October, pushing the nation’s currency to its highest level this year on speculation the central bank will raise interest rates for a record third straight month.
The number of people employed rose 24,500 from September, the statistics bureau said in Sydney today. The median estimate of 20 economists surveyed by Bloomberg was for a decline of 10,000. The jobless rate rose to 5.8 percent from 5.7 percent.
Australia’s economy is expanding with “less spare capacity than earlier thought likely,” the central bank said last week, as China’s demand for resources spurs companies such as Chevron Corp. to hire workers. Reserve Bank Governor Glenn Stevens will raise the benchmark interest rate by a quarter percentage point on Dec. 1 to 3.75 percent, economists surveyed by Bloomberg say.
“Quarter-point increases are on for every meeting until they get to 5 percent,” said John Honan, chief economist at Ausbil Dexia Ltd. in Sydney, who forecast today’s gain in employment.
“The retail sector is employing, as is the services sector and labor-intensive areas of housing activity, plus the obvious resources-based investment,” Honan added.
The Australian dollar, the best performing major currency of the last 12 months, surged to 93.45 U.S. cents at 1:28 p.m. in Sydney from 93.10 cents just before the report was released. The two-year government bond yield climbed to 4.72 percent from 4.68 percent.
Rate Bets
Investors are betting there is an 84 percent chance of a quarter-point boost in December, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 1:14 p.m. Prior to today’s report, they saw a 70 percent chance of an increase. It would be the first time the central bank has raised rates at three successive meetings.
Some 14 of 17 economists surveyed by Bloomberg expect Stevens to raise the benchmark interest rate on Dec. 1 by a quarter percentage point to 3.75 percent.
Australia in October became the first Group of 20 economy to raise borrowing costs since the height of the global recession. By contrast, G-20 nations said at the weekend that interest rates should be kept low and record budget deficits maintained until recoveries take hold.
The number of full-time jobs gained 2,900 in October and part-time employment increased 21,500, today’s report showed.
Cash Handouts
Australia’s economy is growing faster and generating more jobs than the government and central bank forecast earlier this year, helped by Stevens’s decision to slash borrowing costs by a record 4.25 percentage points between September 2008 and April to a half-century low of 3 percent.
Growth was also boosted in the first half of this year by more than A$20 billion ($19 billion) in cash handouts to households from Prime Minister Kevin Rudd’s government. Another A$22 billion is being spent on roads, ports and schools.
“It looks like all sectors of the economy have started to pick up,” said Annette Beacher, an economist at TD Securities Ltd. in Singapore. Employment will increase by between 10,000 and 15,000 in coming months, she added.
David Jones Ltd., the nation’s largest department store, has employed 1,700 permanent part-time staff in the lead-up to Christmas. Michael Luscombe, chief executive officer of Australia’s largest retailer, Woolworths Ltd. told Bloomberg in an Oct. 20 telephone interview the company has 6,000 job vacancies.
Global Contrast
By contrast, the unemployment rate in the U.S. jumped to 10.2 percent last month, the highest level since 1983 and the European Union’s rate climbed to 9.7 percent in September, the worst result since January 1999.
Signs of a rebound in Australian employment were among reasons Stevens raised the overnight cash rate target by a quarter point in October and this month to 3.5 percent, and signaled further “gradual” increases.
“The Australian economy is operating with less spare capacity than earlier thought likely, and the outlook for the next few years has improved,” the central bank said in its quarterly monetary policy statement last week.
While employment growth is expected “to be subdued” over the next couple of quarters, before accelerating in 2010, the outlook for the labor market has “improved” since the bank’s August policy statement, it said on Nov. 6. It didn’t provide specific forecasts for the jobless rate.
Gross domestic product growth will accelerate from 1.75 percent this year to 3.25 percent in 2010, the bank said. In August, it forecast gains of 0.5 percent and 2.25 percent respectively. The economy expanded 1 percent in the first half of this year.
West Booms
The economy is forecast to continue its expansion in 2011 and 2012 as companies boost investment in resources, including Western Australia’s A$43 billion Gorgon liquefied natural gas project owned by Chevron, Exxon Mobil Corp. and Royal Dutch Shell Plc.
Projects such as Gorgon, which is expected to generate 10,000 jobs, were among reasons the government this month scrapped a May prediction that the jobless rate would rise to 8.25 percent in the second quarter of next year.
More than A$100 billion of resources projects expected to generate some 40,000 construction jobs are in progress or planned in resource-rich Western Australia “during the next few years,” according to a state government report on Nov. 4. Those developments may lead to 12,500 permanent jobs, it estimated.
Western Australia’s unemployment rate fell 0.7 percentage point to 5 percent in October, the lowest level in five months. In Queensland, another major mining state, the jobless rate declined to 6 percent from 6.3 percent. By contrast, Australia’s most populous state, New South Wales, home to Sydney, jumped to 6.1 percent from 5.5 percent.
Jobless Peak
Treasurer Wayne Swan said on Nov. 2 that unemployment will peak at 6.75 percent by the June quarter of 2010 before decreasing to 6.5 percent the following year. Swan told reporters in Singapore today, where he is attending the Asia- Pacific Economic Co-operation forum, that Australia still faces a “substantial challenge” on unemployment and the government will maintain its economic stimulus.
“About 670,000 Australians unemployed is a very substantial number and we also know many more people are working reduced hours as a consequence of this global recession, so the government is absolutely focused on supporting employment in the Australian economy,” he said.
Recent reports showed business confidence rose in October to near its highest level in almost six years, home-loan approvals gained in September by the most in six months and house prices jumped 8.4 percent in the six months through Sept. 30.
The participation rate, which measures the labor force as a percentage of the population aged over 15, held at 65.2 percent in October, today’s report showed.
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
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