Australia | Mar 12 2009
By Chris Shaw
The market had factored in a fall of 20,000 jobs for Australian employment data for February but the number surprised on the upside with employment actually recording an increase of 1,800 positions for the month.
But as Westpac senior economist Anthony Thompson notes, the headline number hid the breakdown of the data and here the outlook is not as positive. Thompson points out over the month there were 53,800 full time positions lost and a corresponding large jump in part-time numbers. TD Securities senior strategist Joshua Williamson notes this reflects the trend of employers to where possible reduce hours worked rather than sack people.
Westpac’s Thompson notes the trend for the employment data remains to weaker numbers as growth fell to 0.4% month on month and to 0.7% in year-on-year terms compared to 1.0% for both measures last month. As such, the February outcomes represent the weakest monthly rate since June 2003 and the weakest annual rate since October 2001.
Things won’t get better soon according to Williamson. He notes recent announcements from companies such as Pacific Brands ((PBG)) and others indicate additional job losses in coming months, so in his view today’s data are merely the delaying of the inevitable.
While job numbers increased so too did the unemployment rate, but as Williamson notes this is largely due to an increase in the participation rate, which rose by 0.5% to 65.5%. Thompson estimates if the annual jobs growth rate falls by 1.5% by year end, which he expects, unemployment would hit 6.5% assuming a fall in participation as those without jobs give up the search. If this doesn’t happen and participation increases further unemployment could hit 7.2% by December on his estimates.
ANZ economist Riki Polygenis doesn’t see the data as having much impact with respect to monetary policy given the Reserve Bank of Australia (RBA) was looking for labour market conditions to deteriorate. This means no change to ANZ’s expectation of a 0.25% cut to the official interest rate next month, while Williamson expects the RBA to be more aggressive and cut rates by 0.75%.
For the Australian dollar Williamson suggests the data are bearish given the likelihood of further cuts to rates, though as Thompson notes the market had been anticipating a bad number so the currency may actually enjoy some follow through buying. After falling immediately after the announcement the Aussie has found some support just above US65c. He still recommends going short the currency around US65.20c with a stop at US65.80c.