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Full-time work collapse may spark RBA cuts

AAP logoAAP 20/10/2016 Marty Silk

Full-time work is rapidly disappearing in Australia and paving the way for further interest rate cuts, economists warn, even as latest data shows a drop in the nation's unemployment rate.

Australia's unemployment rate fell to 5.6 per cent in September, from 5.7 per cent in August, it's lowest level in three years.

But the fall has been driven by a drop in people looking for work, while the trend towards part-time employment also continued.

The number of people in full-time jobs fell by 53,000, while only 43,000 gained part-time work, according to Australian Bureau of Statistics figures for September, released on Thursday.

The total number of people with jobs fell by 9,800 in the month, badly undershooting the market forecast of 15,000 rise.

The number of full-time jobs lost since the beginning of 2016 is about 112,000, meaning every day this year about 530 full-time jobs have disappeared.

Capital Economics chief economist Paul Dales said the fall was entirely driven by more unemployed people giving up looking for work, with the participation rate falling from 64.7 per cent to 64.5 per cent.

Mr Dales said the slowing employment market was interesting given Reserve Bank governor Philip Lowe's comment on Tuesday tha the case for moving more quickly to cut rates "would be strengthened in a world where the labour market was deteriorating".

"The RBA may not be too worried by the further decline in employment in September since the data are subject to a couple of distortions and since the unemployment rate fell to 5.6 per cent from 5.7 per cent," Mr Dale said in a note.

"But the labour market is edging closer to the deterioration that Reserve Bank governor Philip Lowe hinted earlier this week could prompt more rate cuts."

Royal Bank of Canada analyst Michael Turner said while one month's figures were unlikely to spook the RBA, the trend of people moving from full-time to part-time work amid a rebalancing of the economy from mining to services was strengthening.

"Over the course of 2016, full-time employment has fallen by 112,000 jobs and part-time has risen by 163,000," he said.

Mr Turner said more people in part-time work meant wage growth would remain low and in turn weigh on already sluggish inflation, which has been the central bank's key interest rate cut trigger this year.

JP Morgan economist Tom Kennedy said the official unemployment rate of 5.6 per cent was understating the level of slack in the labour market.

He said measures of spare capacity such as the underemployment rate - which measures the share of workers who would like to work more hours - and average hours worked continued to look soft.

"We view recent momentum as unlikely to be sufficient to lift core inflation any time soon ... which creates a strong downward bias to the cash rate," Mr Kennedy said.

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