-- Australia's jobless rate unexpectedly drops
-- Signs economy becoming less reliant on mining
-- Resource-rich Western Australia continues to struggle
(Adds state breakdown from second paragraph, economist remarks from sixth.)
By James Glynn
SYDNEY--Australia's unemployment rate unexpectedly fell as more jobs were added in the manufacturing-rich Victoria state, a sign the economy is becoming less reliant on the resources industry as a long mining boom slows.
The jobless rate fell to 5.5% in May from an upwardly revised 5.6% in April, government data showed. In Victoria, where the country's biggest telephone company, Telstra Corp., and two of its largest banks are based, the unemployment rate fell to 5.4% from 5.8% in April and 6.1% in January. Since the start of the year, the state has accounted for nearly a quarter of all jobs growth nationally, even as Victoria's manufacturers struggle to cope with a high local currency.
The central bank last month cut interest rates to a record low 2.75% amid a deepening slowdown in resources investment that has led mining companies to shed thousands of workers in the past year. Its aim has been to spur weaker sectors of the economy such as retail and housing construction to head off an expected sharp rise in unemployment as mining investment cools.
Some analysts, though, are concerned that the rate cuts and a recent sharp drop in the Australian dollar may have come too late to avert a steep downturn in the economy, with official forecasts indicating resources investment will likely peak this year, sooner, and at a lower level, than previously expected.
The unemployment rate in resource-rich Western Australia rose to 5.1% in May in trend terms--a measure that irons out month-to-month volatility in the figures--from 4.9% in April. A year ago, the jobless rate in the state was 3.7% by the same measure.
"Western Australia, which has been the epicenter of the resources investment boom is having a pretty bumpy landing," said Saul Eslake, chief economist at Bank of America Merrill Lynch, adding that the rise in unemployment in the state over the past year was "recession-like".
The relative stability of Australia's unemployment rate in recent months contrasts with anecdotal signs of job losses across the economy. Resource companies have cut thousands of jobs as mining projects were completed and others were scrapped amid declining Asian demand for raw materials such as iron-ore and coal, used in steelmaking.
More recently, contractors servicing the mining industry have issued profit warnings and announced lay-offs as customers like BHP Billiton Ltd. (BHP) and Rio Tinto Plc (RIO) reduce their spending.
Manufacturers have also been under pressure as the Australian dollar traded near historic highs, making them less competitive overseas. Ford Motor Co. last month said it would stop making cars in Australia in 2016, with the loss of up to 1,200 jobs in Victoria, citing high production costs.
Still, Savanth Sebastian, a Sydney-based economist at CommSec, said that while the shift away from resources-driven growth would be difficult, there was evidence record-low interest rates were helping to rebalance the economy.
"I've got no doubt that there are pockets of weakness especially around manufacturing," he said. "But there are certainly other areas of the economy that are strong, if not strengthening."
Financial services, healthcare and technology firms were hiring staff even as layoffs occurred elsewhere, he added.
Adam Boyton, chief economist at Deutsche Bank, said that although the job market was not as weak as some had expected in May, unemployment was likely to rise over time as economic growth weakened.
Deutsche Bank expects the central bank to cut rates again in August or September to give the economy another lift.
-Write to James Glynn at james.glynn@wsj.com
(END) Dow Jones Newswires
June 13, 2013 03:46 ET (07:46 GMT)
Copyright (c) 2013 Dow Jones & Company, Inc.
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