Australia | May 08 2008
By Chris Shaw
Recent economic data give the indication of a weakening Australian economy but today’s labour force data have shown the economy has not yet rolled over, as the figures were far stronger than economists had predicted. Jobs rose 25,400 for the month, which Westpac notes compares to a consensus forecast of something closer to 10,000.
The spread of new jobs was also a positive sign for the economy as full-time positions increased significantly, up 19,000 compared to a 5,000 increase in March. Unemployment rose slightly, but this reflected a 0.2% increase in the participation rate to a record 65.4%.
While ANZ Bank co-head of Australian economics Warren Hogan said that given employment growth lags economic growth, the jobs data doesn’t really tell the market anything about the state of the economy’s forward momentum, Commonwealth Bank senior economist John Peters said the jobs data was good news given recent economic data had indicated a softening in the economy generally.
What isn’t such good news, in his view, is the jobs data will mean the Reserve Bank of Australia (RBA) will maintain a tightening bias with respect to interest rates given it implies wage, and therefore inflationary, pressure.
The RBA has long been wary of rising wages resulting from low unemployment, and hammered the point home once again in its statement this week.
As well Peters points out there are still a number of stimulatory factors for the Australian economy, as the terms of trade will get a boost from rising iron ore and coal prices and upcoming tax cuts and a rebound in the farm sector should keep economic growth at solid levels. (Another RBA point of warining).
Peters continues to see scope for a further 0.25% increase in interest rates as a result, with later in the year the most likely time for this to occur. While Hogan takes the view rates have peaked he makes the point the RBA is at present expecting inflation to come back into its target band sometime before the middle of 2010, but if this timetable were to be pushed out it would suggest rates are not yet tight enough and further action may be required.