Australia | Jan 15 2009
By Chris Shaw
Most economic indicators show the Australian economy is doing it tough, but employment continues to hold up relatively well overall. Today’s release of December employment data in Australia show only a net decline of 1,200 positions. This compares with market expectations of a fall of around 20,000.
This means unemployment in Australia has only increased to 4.5% against 4.4% in November of last year. In February last year the figure was 3.8%. On face value this is a good performance, though as ANZ Banking Group economist Riki Polygenis notes the December headline figure hides an underlying shift from full-time to part-time employment.
Polygenis points out full-time jobs fell 43,900 in the month while part-time numbers rose by a similar amount, this rotation being the usual trend in the early stages of a recession as employers firstly cut working hours before being forced to eliminate jobs entirely.
It is a trend that will concern policymakers in Polygenis’s view as it implies household income growth will slow in coming months, which is a negative for economic growth going forward. Westpac suggests there is also scope part-time numbers don’t continue to increase at the same pace as in December as it is possible the month represented an increase in such jobs by retailers ahead of the stimulus package payout by the Federal Government.
According to Westpac unemployment will continue to trend higher in coming months, its estimates calling for a rate of 5.5% by the middle of the year and 6.0% by the end of 2009. Risks are to the upside in terms of the unemployment rate in the bank’s view. Joshua Williamson, seniort strategist at TD Securities is forecasting an unemployment rate of more than 6.0% by the end of the year.
Given this outlook Williamson suggests the appropriate policy remedy is additional cuts to official interest rates and he is forecasting a cut of 0.75% when the Reserve Bank of Australia (RBA) meets next month. A further 0.5% rate cut in the next few months is also expected, which would bring the official cash rate down to 2.5%.
ANZ’s Polygenis is a little less aggressive with respect to rate cut forecasts, expecting a 0.5% cut at next month’s RBA meeting, though the point is made there is scope for a larger cut given today’s and other recent economic data are adding to the case for a more significant move.