Unexpected expected drop in unemployment figures

The jobless rate unexpectedly shrank to 4.1 per cent in August, its lowest level since March. New data from the

Australian Bureau of Statistics shows the number of people employed also grew by a seasonally adjusted 14,600 in August, nearly three times the amount economists were expecting. This followed a revised 18,700 increase in July.

The August jobs growth included 7500 new full-time positions, according to the ABS.

"They are very solid figures with 14,000-plus jobs created and it’s very encouraging and a reminder that the underlying fundamentals of the economy are strong but we are not immune from the fallout in global events," said Federal Treasurer Wayne Swan.

The data shows unemployment fell in every state and territory except New South Wales, where it bucked the trend and rose to 4.9 per cent from 4.7 per cent, while in the ACT it remained at a lowly 2.8 per cent. Economists had expected a rise in the jobless rate to 4.4 per cent from 4.3 per cent in July.

The Reserve Bank of Australia governor Glenn Stevens said ahead of the release of the new figures this week that he expected the unemployment rate would rise by a percentage point in the next year or so, suggesting a figure of around 5 per cent.

The RBA cut its key interest rate this month, the first reduction in nearly seven years, off the back of signs of a slowdown in the economy. RBC Capital Markets senior economist Su-Lin Ong questioned the new jobs data, saying the labour force report has been affected by budget cuts at the ABS with the sample size reduced by about a quarter since July.

"It, nevertheless, confirms a reasonably healthy labour market reflecting the strength of the economy two to three quarters ago,’’ Ms Ong said.

"The forward indicators of the labour market are more insightful and suggest a moderation in employment growth ahead and a sustained rise in the unemployment rate.’’

The strong August result have dented expectations of another interest rate cut in October.  Financial markets pared back their forecast for an October rate cut to around a 60 per cent chance from 70 per cent previously.

ANZ senior economist Katie Dean said the drop in the jobless rate reflected a fall in the number of people actively seeking employment.

"More people leaving the labour force is not exactly good news," Ms Dean said.

"We still think the RBA will deliver another 25 basis point cut before year-end. But today’s data suggests an RBA rate cut as soon as October is still a close call, and certainly no done deal."