SYDNEY–Australia’s economy moved a step closer toward full employment in July as the unemployment rate fell to a 6-year low.
The jobless rate dropped to 5.3% in July from 5.4% in June, a level last seen at the end of 2012 when economic growth was fueled by a boom in mining investment, the Australian Bureau of Statistics said Thursday.
The result puts the unemployment rate within striking distance of the Reserve Bank of Australia’s estimate of full employment of around 5%, a target the bank said last week wouldn’t be reached until the end of 2020.
However, there was no scramble Thursday to rethink forecasts of when the RBA might raise official rates, with economists saying the fall in unemployment came amid a loss of 4,000 jobs in the month.
The lower unemployment rate emerged as fewer people were looking for work in July. The participation rate fell to 65.5% from 65.7% in June, the statistician said.
The number of full-time workers rose by 19,300, while those in part-time work fell by 23,200, the statistician said.
The drop in unemployment will be welcomed by the RBA which is expecting only gradual improvement in the economy over coming years, including on-year GDP growth of more than 3% in 2018 and 2019, higher inflation, and an eventual interest rate rise.
“The important point is that the labor market has incrementally tightened over the past few months,” said Ben Jarman, economist at JP Morgan. “It will keep the RBA comfortable in the narrative of gradual improvement,” he said.
Still, the goal of reaching full employment may be further away than the data suggests.
Recent experience in other major economies is that it has taken much lower levels of unemployment than originally thought to soak up workers, trigger wage increases, and stoke inflation.
There is little reason to expect Australia will be any different in a global environment of intense price competition and cost control by firms.
With measures of labor force slack in Australia still elevated, some economists argue that full employment is somewhere well below 5%.
The RBA has held interest rates at a record low 1.5% since August 2016.
Data Wednesday showed wages growth remains subdued, rising by just 2.1% on-year.
RBA Governor Philip Lowe has estimated wages growth of 3.5% on-year is needed to return inflation to the mid-point of the RBA’s 2-3% target band. Underlying inflation in Australia is currently running at 1.9% on-year.
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