UPDATE 1-Australia unemployment stubborn even as jobs jump in July

* Employment jumps 41,100 in July, vs forecasts +14K

* Jobless stuck at 5.2% as participation hits record

* RBA expected to ease again unless unemployment drops

SYDNEY, Aug 15 (Reuters) - Australian employment surged past expectations in July as firms kept hiring despite worries of an economic slowdown, yet the jobless rate stayed stubbornly stuck at 5.2% as more people went looking for work.

Thursday’s data showed 41,100 net new jobs were added in July, well above the 14,000 expected, with full-time positions making up 34,500 of those.

Yet the supply of labour expanded just as fast, stopping the unemployment rate from falling and maintaining the case for further cuts in interest rates.

The Reserve Bank of Australia (RBA) has singled out the labour market as the touchstone for whether it needs to cut rates again, after easings in both June and July.

Policy makers have set an aspirational goal of reaching a jobless rate of 4.5%, a tough ask given it has been stuck above 5% since bottoming at 4.9% in February.

The task is all the harder as uncertainty over the Sino-U.S. trade dispute is forcing businesses to put off investments, while spreading turmoil in world financial markets.

Australia’s main share index sank 1.9% on Thursday following heavy losses on Wall Street, while the local dollar was pinned at $0.6768 after shedding 0.7% overnight.

RBA Deputy Governor Guy Debelle highlighted the risks from trade in a speech earlier on Thursday, warning it could trigger a self-fulfilling global downturn.

The bank itself has forecast unemployment will be at 5% or higher right out to mid-2021, a major reason financial markets have priced in two more quarter-point rate cuts to 0.5% by early next year.


The problem is not with jobs growth, which at an annual 2.6% is strong by historical standards and well above the recent U.S. performance of 1.5%.

The sticking factor is that the supply of workers has more than matched that growth, stopping the jobless rate from falling.

This is partly due to a steady influx of skilled migrants, many of whom have jobs when they arrive, and of foreign students who fill part-time positions.

As a result, Australia’s annual population growth of 1.6% is double the OECD average and among the highest in the developed world.

At the same time more locals have been looking for work, particularly women and older people. This has been attributed to everything from government support for child care, to cost of living pressures, high home prices and better health in old age.

The trend has seen the participation rate rise steadily in recent years to reach a record peak of 66.1% in July, meaning two of every three people of working age are either in a job or actively looking for one.

That compares with just 63% in the United States, implying the Australian jobless rate would be much lower if it had the same participation as the U.S.

While this makes for a more flexible labour market, it has also put downward pressure on wages and inflation.

Figures out this week showed annual wage growth was stuck at 2.3% in the June quarter, when the RBA has said a pace above 3% is needed to lift inflation back into its 2-3% target band. (Reporting by Wayne Cole Editing by Shri Navaratnam)