AUSTRALIA's unemployment rate is rising far faster than anyone feared possible as wealth destruction forces would-be retirees to go looking for jobs, a disturbing new trend likely to be repeated across the rich world. Mix in a rapidly aging population, and the implications are far reaching. Less spending, more saving, slower economic growth, lower inflation, bigger budget deficits and a need for even easier monetary policy are all in prospect. “The risk is that unemployment now rises a lot further than we expected,” said Paul Brennan, head of market economics at Citi. “And there's not a lot policymakers can do about it, given the overwhelming need to rebuild wealth.” For, at heart, this is a tale of lost riches. Household wealth in Australia fell 10 percent in the past year, the biggest drop since the 1930s. And that's mild compared to the United States and the UK, where home prices have slumped by far more as the global financial crisis deepened. US households alone lost $11.2 trillion in wealth last year as property and stock markets fell, the largest drop on record, the Federal Reserve said on Thursday. Australia's pension funds suffered because they were heavily exposed to equities, with around 85 percent of assets in stocks, against 65 percent in the United States. Since the main share index is down by 55 percent in just 14 months, plans of early retirement to a house on the beach seem like childhood dreams. Already the household saving ratio has jumped to an 18-year high here as people hoard more and spend less. Debt levels are falling for the first time in decades. “While this is a necessary and totally logical and prudent reaction of consumers, it spells disaster for economic growth,” said Stephen Koukoulas, global strategist at TD Securities. Which was why he believes the Reserve Bank of Australia (RBA) will have to cut interest rates again as early as April, having skipped a chance to ease this month. “If stocks remain depressed, the pension performance will continue to drag the economy lower,” argued Koukoulas. “This is yet another reason why the RBA needs to ramp up the rate cuts and work to boost profits, and with it the stock market.” Bye bye to retirement The painful reordering of household priorities was apparent in Australian labor data released this week. Unemployment jumped to a four-year high of 5.2 percent in February, up 0.7 percentage points in just two months even though total employment actually rose slightly. The key was a sharp rise in the number of Australians looking for work. The participation rate, a measure of the labour force as a percentage of the working-age population, climbed to a record high of 65.5 percent while the number of jobless rose by the most since 1991. That's strange indeed, as would-be workers usually become discouraged during economic slowdowns and drop out of the labour force. This time, those between 60 and 64 are returning to the labour force in droves, with their participation rate rising 4 percentage points in January alone.
