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Australia unemployment stubborn even as jobs jump in July

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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 per cent as more people went looking for work.

[SYDNEY] 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 per cent 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.

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

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

Australia's main share index sank 1.9 per cent on Thursday following heavy losses on Wall Street, while the local dollar was pinned at $0.6768 after shedding 0.7 per cent 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 per cent or higher right out to mid-2021, a major reason financial markets have priced in two more quarter-point rate cuts to 0.5 per cent by early next year.

RECORD PARTICIPATION

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

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 per cent 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 per cent 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 per cent in the United States, implying the Australian jobless rate would be much lower if it had the same participation as the US.

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 per cent in the June quarter, when the RBA has said a pace above 3 per cent is needed to lift inflation back into its 2-3 per cent target band.

REUTERS