Australian jobless rate unexpectedly falls; currency surges

A pedestrian walks past a man holding a sign as he begs for money on a main street in central Sydney on March 18, 2015. Australian unemployment unexpectedly fell in May to the lowest in a year, indicating that improved business confidence is translat
A pedestrian walks past a man holding a sign as he begs for money on a main street in central Sydney on March 18, 2015. Australian unemployment unexpectedly fell in May to the lowest in a year, indicating that improved business confidence is translating into increased hiring. -- PHOTO: REUTERS

SYDNEY (BLOOMBERG) - Australian unemployment unexpectedly fell in May to the lowest in a year, indicating that improved business confidence is translating into increased hiring. The currency jumped.

The jobless rate dropped to 6 per cent from a revised 6.1 per cent, compared with economists' estimate of 6.2 per cent, government data showed Thursday. The number of people employed advanced 42,000, almost three times the number predicted.

The report adds to increasing impetus in housing construction that is soaking up workers who are surplus to requirements at mine sites where an investment boom is winding down. Still, central bank Governor Glenn Stevens said this week he's open to reducing the record-low 2 per cent interest rate further to add support to the economy's transition.

"Growth in employment is reasonable and consistent with a flat unemployment rate," Michael Blythe, chief economist at Commonwealth Bank of Australia, said in a research report ahead of the release.

The Australian dollar traded at 77.71 US cents (105.1 Singapore cents) at 11:37 a.m. in Sydney, from 77.17 cents before the data was released.

The number of full-time jobs rose by 14,700 in May, and part-time employment increased 27,300, the report showed. Australia's participation rate, a measure of the labor force in proportion to the population, held at 64.7 per cent, it showed.

Woolworths Ltd., Australia's largest supermarket chain, said this week it plans to open at least 20 new stores and refurbish 40 existing ones in Victoria state over the next three years and increase hiring.

Still, Australia is facing the effects of a fall in prices for its key commodity exports, led by iron ore. The economy grew 2.3 per cent in the first three months of 2015 from a year earlier, below the average rate over the past 30 years.

"The slowing in wage growth in response to soft labor market conditions has also undoubtedly helped to hold employment up," Mr Stevens said in Brisbane June 10. "In fact wage growth appears to be somewhat lower than previous relationships between wages and unemployment would suggest. This may be a sign of increased price flexibility in the labor market and could help to explain why employment recently has looked a little higher relative to estimated GDP than might have been expected."

The Australian dollar has climbed more than 2 per cent in the past three months. Traders are pricing in 14 basis points of rate cuts in the next 12 months, according to a Credit Suisse Group AG index based on swaps ahead of the release.