Australia | Dec 11 2008
By Chris Shaw
The Australian labour market has been fairly resilient in the face of weaker conditions elsewhere in the economy, but as TD Securities senior strategist Joshua Williamson suggests, the November data show employment is finally catching up to these softer conditions.
Employment fell by 15,600 in the month, which ANZ Banking Group economist Riki Polygenis notes was broadly in line with market expectations of a decline of around 15,000. The major surprise was an increase in full time jobs of 8,800, but as Williamson points out, this was offset by weakness in part-time positions as businesses attempt to retain core staff.
In his view, the risk is as the economy weakens further more cuts to labour will need to be made. This is particularly so because businesses will of course look to remain competitive in the tough conditions and staff costs are easy to cut. Although, according to Polygenis, the fact full time positions rose in the month shows some level of resilience in the labour market. This supports her view unemployment will rise only gradually to 6.0% by the end of 2009 and 6.5% by the end of 2010.
Westpac tends to agree, though it cautions its forecast of 6.0% unemployment next year may prove to be conservative given other indicators such as labour demand are also weakening. Commonwealth Bank economist James McIntyre agrees unemployment is heading higher, pointing out monthly jobs need to grow by about 18,000 to offset new entrants into the labour market.
This is not happening yet, as annual jobs growth, which is currently at its lowest level since March of 2004 at 1.65%, may slow to as much as 0.5% by the middle of next year and 0.2% by the end of 2009, according to Westpac forecasts.
This supports Williamson’s view that given the expectation of further job losses in coming months, the Reserve Bank of Australia (RBA) will continue to make cuts to official interest rates. McIntyre agrees, predicting the RBA will cut rates by 0.5% in January before pausing to see what impact the rate cuts already have had on the economy.