Feb. 19, 2020, 9:14 p.m. EST

Australia's unemployment rises as fires take toll

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By James Glynn

SYDNEY--Australia's unemployment rate jumped in January as the country battled extreme bush fires that ravaged key tourism and farming regions.

Unemployment rose to 5.3% from 5.1% in December, the Australian Bureau of Statistics said Thursday. A total of 13,500 jobs were created during the month.

The Australian dollar fell after the data as the numbers stoked the case for further interest rate cuts later this year.

Reserve Bank of Australia Governor Philip Lowe has closely linked the interest rate outlook to the jobs market, saying recently that a material rise in unemployment would be met by further interest rate reductions.

The economy created 46,200 full-time jobs during through January, while part-time employment fell by 32,700, the ABS said. More people were looking for work during January, with the participation rate rising to 66.1% from 66.0%.

Substantial spare capacity remains in the job market, containing wages growth. Underemployment jumped to 8.6% in January from 8.3% in December. Data Wednesday showed wages grew by a sluggish 2.2% year-on-year. Wages have been flat over many years, subduing consumer confidence and deepening concerns about repaying record household debt.

Wildfires affected huge swathes of the country through January, with key coastal tourism towns badly affected at a time when many Australians would normally be enjoying beach vacations.

The fires prompted mass evacuations that caused traffic jams along coastal highways.

The damage to farm areas was also extensive as herds, crops and infrastructure were taken in the fires. More than 30 people died while huge numbers of wildlife were also lost.

The RBA has estimated the economy slowed as a result of the fires which began late last year, with the slug to growth in the first quarter of 2020 expected to be significant.

Still, the RBA is banking on recovery funds to assist farmers and business in the short-term, while the rebuilding of infrastructure is expected to lift the economy later in the year.

The fires hit as the economy was already being slowed by a drop in consumer spending, and as the U.S.-China trade war disrupted global growth and investment.

The outlook has also been complicated by the coronavirus outbreak. One third of Australia's exports go to China, putting the economy in the direct firing line of the crisis.

The government has temporarily banned the arrival of Chinese tourists to the country, while Chinese students studying at Australian universities have also been stranded overseas. Tourism and education are significant services exports for Australia.

Earlier Thursday, Australia's No. 1 airline, Qantas Airways Ltd., said that net profit fell in the six months to December and that it is cutting flights to Asia in response to the coronavirus outbreak, which would hurt its full-year profit.

-Write to James Glynn at james.glynn@wsj.com

Mike Cherney contributed to this article.

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