Australia | Jul 12 2007
By Chris Shaw
Australian labour market data for June was released today and showed an increase in jobs of just 2,500, an outcome short of market consensus of an increase of closer to 15,000 positions. A total of 36,900 part-time positions were created buy there was a fall of 34,300 in full time jobs, meaning unemployment rose to 4.3% from 4.2% last month.
According to Commonwealth Bank senior economist John Peters the result is as reflection of the very strong increases in job numbers recorded in both April and May that made a breather this month more likely but doesn’t change the fact the labour market remains very tight.
It is expected to remain tight for the rest of 2007 as well, Westpac noting job ads, lagged domestic demand and unemployment expectations all point to a continued strong jobs growth outlook.
This tightness is likely to keep the job market firmly in the sights of the Reserve Bank of Australia (RBA) given the potential for it to flow over into higher wages according to Peters, which would then put more pressure on inflation and force further action on interest rates.
ANZ Banking Group senior economist Riki Polygenis agrees, suggesting today’s data will ensure the RBA will maintain its tightening bias for some time. TD Securities global strategist Stephen Koukoulas suggests today’s outcome may in fact be the result of a lack of suitable candidates rather than a lack of available positions, so he too cautions the slight rise in unemployment doesn’t signal the start of a new trend.
He expects pressure on inflation to continue as the demand for workers will eventually flow through in higher wages, the other issue being while new workers are entering the labour force and helping keep wage demands in check these workers need to be trained, which increases unit labour costs and puts downward pressure on productivity rates.
Koukoulas, Polygenis and the Westpac team all expect the RBA will keep rates unchanged in the short-term following today’s data, though Koukoulas suggests the upcoming CPI figure due later this month will be the deciding factor. He argues if the RBA doesn’t move now, December becomes the earliest they can lift rates as it would be seen as too political to move during an election campaign.
The CBA’s Peters take a different view, suggesting today’s numbers mean it is a good chance the RBA will in fact lift rates next month, though he too suggests a benign CPI result could see rates staying unchanged for a bit longer.