Analysis & Comment

Australia’s Unemployment Rate Drops to 5.1% in January Despite Hundreds of Job Cuts

Australia’s Unemployment Rate Drops to 5.1% in January Despite Hundreds of Job Cuts

Despite hundreds of jobs axed since the start of 2012 as large Australian firm reported lower profits, the country's unemployment rate actually went down to 5.1 per cent in January from 5.2 per cent in December 2011.

For the same month, the number of employed Aussies went up by 46,300 to 11.464 million, according to the Australian Bureau of Statistics.

The report, released Thursday, went against analysts' expectations of a 5.3 per cent joblessness rate for the first month of 2012. The addition of employed people was larger in part-time work which went up 34,000 to 3.4 million, while only 12,300 Australians got full-time work to bring the total to 8.1 million.

While the January unemployment data is the lowest in six months, there is a possibility  that the numbers would go up again in February as major Australian firms such as BHP Billiton, Holden, ANZ, Westpac, Thales, Manildra, Toyota and Reckitt Benckiser announced lay offs.

However, City Index market analyst Peter Esho said that joblessness rate could still go down to less than 5 per cent by the end of 2012.

While the national unemployment figure indicates an improvement, a Treasury official acknowledged the pain of losing jobs for some Australians.

"I don't want to downplay the pain that some people go through as a consequence of, let's say, the closing of a car plant and the laying off of people. That's real," David Gruen said at a hearing in Canberra on Thursday.

However, he said, it is better for that situation to happen in an environment when unemployment is near 5 per cent than during the middle of a recession and joblessness going throughout the country. He attributed Australia's better-off economy to the mining boom.

Savanth Sebastian, economist at CommSec, said the unemployment rate in Australia pales in comparison to the U.S.'s 8 per cent and Europe's more than 10 per cent.

"Comparing the job market in Australia with markets in Europe or the U.S. is like comparing chalk with cheese," Mr Sebastian said.

Economists said that the decline in unemployment rate reduces the chance of more overnight the cash rate cuts by Reserve Bank of Australia in the next few months.

Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore said the strong ABS report would likely remove any remaining expectations of an RBA rate cut in March. Westpac chief economist Bill Evans predicted the next overnight cash rate would likely be in May.

However, the big four may likely buck again passing in full any RBA rate cut as they did recently.

By Vittorio