SYDNEY (Reuters) - Australia’s jobless rate unexpectedly jumped to a decade high in January, intensifying concerns about the future of the manufacturing sector as global carmakers prepare to pull out.
The Australian dollar dropped nearly one U.S. cent on speculation interest rates might have to be eased again.
Thursday’s data from the Australian Bureau of Statistics showed unemployment rose to 6.0 percent in January, the highest level since July 2003 and well above forecasts of 5.8 percent.
A net 3,700 jobs were lost in January, a huge disappointment as it followed a sharp 23,000 drop in December and meant no new jobs had been created at all in the past 12 months.
The poor report puts the Reserve Bank of Australia (RBA) in a tough spot as only last week it shut the door on more easing, citing signs past cuts were boosting activity along with an unwelcome pick-up in inflation.
The central bank has repeatedly said that it expected unemployment to rise gradually this year, so the numbers would not be a total shock. Yet were the jobless rate to move much above 6 percent, pressure would surely grow for a further cut in the 2.5 percent cash rate.
“Overall, a poor start to 2014 and while some may argue that employment is a lagging indicator, we would also suggest this print will be a negative for household income, sentiment and thus spending,” said Justin Smirk, a senior economist at Westpac. “We are closely watching this space.”
Futures markets are only pricing in a slender chance of an easing anytime soon, though investors still decided to knock the local dollar down..
The report will add to the media gloom that followed Toyota’s (7203.T) decision this week to join Ford (F.N) and the Holden unit of General Motors (GM.N) in ceasing manufacturing in Australia by 2017.
Government figures show that car makers have not made a profit since 2003, instead running up combined losses of A$4.4 billion. Domestically produced cars comprise little more than a tenth of the 1.1 million vehicles sold annually in Australia.
The closures will be a blow to an already sluggish labor market given the ABS estimates around 45,000 people are employed in vehicle and parts manufacturing, with Toyota, Holden and Ford accounting for around 8,000 directly.
Alan Oster, chief economist at NAB, also noted the layoffs will come as a number of major resource projects are set to be completed with a resulting loss of construction jobs.
“The demise of the automotive construction industry can be expected to represent an additional headwind for the Australian labor market over the next twelve to eighteen months,” he says.
Yet the scale of the blow should be kept in perspective.
Manufacturing as a whole accounts for only 7 percent of gross domestic product (GDP), and cars a mere 0.4 percent. The entire sector has just 8 percent of all jobs, behind construction, retail, and health care.
Employment in scientific, professional and technical services has expended so rapidly in recent years it is almost as large as manufacturing.
Indeed, the business of selling and maintaining vehicles has three times as many workers as car building, and they could actually fare better should import tariffs be removed entirely and imported cars become cheaper.
“Our analysis suggests that the impact on the national labor market and on growth will be small,” said Diana Mousina, an economist at CBA. “The outcomes of industry restructuring over the past decade indicate that the bulk of the workforce find employment in other sectors.”
Editing by John Mair