Thursday, February 11, 2010

Australia’s Rate Pause May Be Short-lived Amid Employment Boom

By Jacob Greber

Feb. 12 (Bloomberg) -- The biggest Australian jobs boom in five years may make it harder for central bank Governor Glenn Stevens to extend a pause in recent interest-rate gains.

Investors doubled bets the Reserve Bank of Australia will raise the overnight cash rate target by a quarter percentage point to 4 percent next month after a report yesterday showed employers added 52,700 workers in December, more than three times the 15,000 median estimate of 21 economists surveyed by Bloomberg News.

The fifth straight month of employment increases drove the jobless rate to an 11-month low of 5.3 percent, almost half European Union and U.S. levels, and stoked gains in Australia’s currency. Rising demand from mining companies such as Chevron Corp. for skilled workers threatens to push up wages and adds to signs the $1 trillion economy is robust enough to weather higher borrowing costs.

“The sting in the tail is that the job market is tightening, potentially causing employers to bid up for staff,” said Craig James, a senior economist at Commonwealth Bank of Australia who says the odds of a rate increase next month are about even.

Traders say there is a 46 percent chance of a quarter-point increase on March 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 4:03 p.m. yesterday. Prior to the jobs report, the chance of a move stood at 24 percent.

Stevens will raise the central bank’s key rate to 4 percent next month, according to eight of 17 economists surveyed by Bloomberg News yesterday. All expect an increase in borrowing costs by the end of next quarter.

Stronger Currency

The Australian dollar, which has jumped 36 percent in the last 12 months, rose to 88.85 U.S. cents in Sydney yesterday from 87.72 cents just before the report was released. The S&P/ASX 200 index of stocks rose 0.9 percent to 4,554.30.

Australian employers have added 194,600 jobs since August, the biggest five-month surge since employers created 214,000 jobs between September 2004 and January 2005.

Stevens unexpectedly kept the overnight cash rate target unchanged at 3.75 percent last week, saying information about the impact on the economy of quarter-point gains every month last quarter is still limited.

Yesterday’s report means “it’s now likely that the Reserve Bank will make a further cautious adjustment” next month, said Matthew Johnson, an interest-rate strategist at UBS AG in Sydney. “While the bank need not push too hard in response to this labor-market report, if employment growth sustains this pace, we’ll obviously be wrong about their gradualism,” Johnson said.

Resources Boom

Yesterday’s report reinforces the central bank’s prediction last week that Australia’s economic growth will accelerate this year as resources companies boost investment in mines and gas fields to meet rising global demand for iron ore, coal and energy.

The nation’s unemployment rate has tumbled from 5.8 percent in October, after Prime Minister Kevin Rudd’s government stoked the economy by distributing more than A$20 billion ($18 billion) in cash to consumers. Another A$22 billion is being spent on roads, railways and schools.

In contrast, the unemployment rate in the U.S. was 9.7 percent in January, and 10 percent in November among European Union countries, the highest rate in more than 11 years. New Zealand’s jobless rate climbed to 7.3 percent in the fourth quarter, the highest in more than 10 years, and Japan’s rate was 5.1 percent in December.

Faster Growth

The rebound in Australia’s economy, one of the few to skirt last year’s global recession, is being driven by a combination of the government’s stimulus package, Governor Stevens’ decision to slash interest rates to a half-century low of 3 percent in April last year, a stronger currency and the resilience of China, Treasury Secretary Ken Henry said yesterday in Canberra.

Gross domestic product will climb 3.25 percent in the three months through December 2010 from a year earlier, after gaining an annual 2 percent in the fourth quarter of 2009, the bank said in its quarterly monetary policy statement published last week.

“It now looks likely that the unemployment rate has peaked around 5.75 percent, a much better outcome than thought likely early last year,” when the government forecast the jobless rate would reach 8.5 percent in 2010, the central bank said on Feb. 5.

The number of full-time jobs gained 15,900 in January and part-time employment increased 36,900, yesterday’s report showed.

A shortage of workers may increase costs and cause delays at the nation’s liquefied natural gas projects, Fitch Ratings said on Feb. 8.

Pay Rise

The Maritime Workers Union of Australia has secured a A$50,000 pay increase over three years for workers at Total Marine Services Ltd., the Australian Broadcasting Corp. reported last week.

Marius Kloppers, chief executive officer of BHP Billiton Ltd., the world’s biggest mining company, said this week that the skills shortage in Australia’s resources industry is emerging faster than expected.

Chevron in December announced it signed an $82 billion deal with Japan’s Tokyo Electric Power Co. to supply liquefied natural gas from its Wheatstone field in Western Australia. The project is forecast to generate 6,500 jobs during construction.

It is in addition to the Chevron-led Gorgon gas venture, which is forecast to create another 10,000 jobs when construction starts this year.

Still, not all analysts are convinced that yesterday’s jobs report will prompt Stevens to raise borrowing costs next month.

“Despite the strength of the employment numbers over recent months, there is a soft underbelly” to the labor market, said Stephen Roberts, an economist at Nomura Ltd. in Sydney.

The number of hours worked declined 1 percent in January from December and 1.2 percent from a year earlier, which “will ultimately affect growth in household disposable income,” Roberts said. “The next cash rate hike is likely to be in May.”

No comments: