REPEAT: MNI ANALYSIS: Labor Participation Imp RBA Policy Risk

Repeats Story Initially Transmitted at 02:27 GMT Feb 15/21:27 EST Feb 14

By Sophia Rodrigues

     SYDNEY (MNI) - Australia's unemployment rate has hovered around the 5.5%

mark for nine straight months as rise in participation rate offset the strong

growth in employment. A continuation of this trend is the key risk for the

Reserve Bank of Australia's monetary policy as it could slow the rate at which

spare capacity diminishes and puts upward pressure on wage growth.

     Data published by the Australian Bureau of Statistics Thursday show the

economy created 16,000 jobs in January, an outcome that was close to MNI median

forecast. The jobless rate fell to 5.5% from December's upwardly revised 5.6%

and this was mainly due to a small decline in labor participation rate to 65.62%

from 65.68%.

     However, participation rate has remained strong over the past year and

especially so since April when it was at 65.0% and the jobless rate was at 5.7%.

Since then the jobless rate has moved in a narrow range of 5.4% to 5.6% despite

strong growth in employment, as this was offset by participation rate that rose

to as high as 65.7%.

     The rise in participation has been mainly on account of increase in female

participation which rose from 59.5% in April to a record high of 60.5% in

December, and stayed at that level in January. Rise in labor participation has

been a key theme of labor markets in the euro area, the U.S., Japan and closer

to home at New Zealand. In the latest Statement on Monetary Policy, the RBA

especially pointed to Japan which is seeing a trend similar to Australia -- of a

rise in female participation rate.

     In the same statement, the RBA cited participation rate as an uncertainty

for spare capacity in the labor market, and thus for wage growth and inflation.

     The RBA said, "it is unclear whether participation rates will increase

further and, if so, by how much; this represents an uncertainty around the

question of how spare capacity in the labour market is likely to evolve." But in

the forecast, it has assumed that the participation rate would  increase a

little further over the next few years. 

     If participation rate rises further in the next few months, it would keep

the unemployment rate around 5.5% even if employment grows at a slower rate.

That would delay the fall in the jobless rate to 5.25% which is the RBA's

forecast.

     There is also an additional risk for monetary policy -- estimating what the

NAIRU is. For now, the RBA thinks it is around 5% but has also warned that it

might have fallen below that level. Until, the jobless rate falls towards 5%, it

would be difficult to estimate what the NAIRU is, and this rate is key to judge

when wage growth starts accelerating.

     Until then, the RBA's hold-for-longer monetary policy stance is likely to

continue, with a small downside risk.

     Below is the recap of the labor force data for January:

                                            January                     December

--------------------------------------------------------------------------------

                         (M/M, seasonally adjusted)   (M/M, seasonally adjusted)

                                                            +33,500(revised from

Employed Persons                            +16,000                     +34,700)

                           +15,000 (range +5,000 to

MNI Consensus                              +35,000)

Full-time Employment                        -49,800                      +15,100

Part-time Employment                        +65,900                      +19,500

Unemployment Rate                              5.5%     5.6% (revised from 5.5%)

MNI Consensus                                  5.5%

Participation Rate                            65.6%          65.7% (no revision)

MNI Consensus                                 65.7%

Unemployed Persons                           -7,900                      +22,500

Employment to

Population                                    62.0%          62.0% (no revision)

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

[TOPICS: MTABLE]