Jobless rate expected to ease interest rate fears

By David Williams

SYDNEY (AFP): Australia's impending jobless figures should calm jittery financial markets by delivering the sought-after news that economic growth is not accelerating, analysts said yesterday.

February labor force data due out today was expected to show little change in the unemployment rate of a seasonally adjusted 10.5 percent the month before, economists said.

The figure would have no immediate impact on fixed interest or currency markets unless it broke wildly out of the expected range, they said.

However, signs of slow but steady employment growth should help to ease fears that soaring economic growth will lead to higher inflation and an official interest rate hike.

Commonwealth Bank of Australia senior economist Bruce Freeland, who forecast an adjusted jobless rate in February of 10.5 percent and employment up by 5,000 jobs, said markets would ignore the headline figures.

"I don't think it will have a great deal of impact," Freeland said. "The bond market would appear to be affected by what is happening offshore and I think that will continue for some time.

"However, if we see a weaker increase of a fall in employment coming on the back of slower growth in retail trade, that may just cement the perception that growth may be a bit slower in the first half of 1994 than it was at the end of 1993," he said.

Retail trade figures released Tuesday by the Australian Bureau of Statistics showed turnover increased by just 0.1 percent, adjusted, in February after a 1.5 percent jump the month before. "Slower growth would be good news for the markets," Freeland said.

"Growth is good for the market as long as we don't get too much, although the focus on growth is a bit misleading because it is inflation that is important and that is still low."

Citibank Australia economist Stephen Koukoulas forecast the adjusted February unemployment rate at 10.4 percent, with a growth in employment of 25,000 jobs.

Any signs that economic growth was steady but not rampant would help markets "to that extent they are not feeding into this fear that we are going to get a runaway inflation rate," Koukoulas added.

Dresdner International Financial Markets Australia chief economist Rob Henderson said in a report that a further rise in employment would not help the domestic bond market.

Henderson predicted an adjusted February unemployment rate of 10.5 percent with employment up 4,400.

"With credit markets now jumping at any shadow of negative data, the further rise in employment will be interpreted as showing the recovery is now so strongly underway that sustained jobs growth is occurring," he said. "This cannot be otherwise than a negative for the bond market."

Normally, Henderson added, signs of growth would encourage overseas investors into the Australian stock market, pushing up the value of the Australian dollar.

"However, our view is that major international investors are sidelined at present, waiting for volatility in the markets to drop before placing strategic positions. Therefore the Australian dollar is likely to gain little from the employment data," he said.

Official interest rates were last changed on July 30, 1993, when the central Reserve Bank of Australia cut them to 4.75 percent from 5.25 percent.

The consumer price index rose 0.2 percent in the December quarter of 1993, giving an annual inflation rate of 1.9 percent.

-30-