Australia | Aug 08 2008
(This story has been republished on Friday as a technical error on Thursday prevented the story from appearing on our website).
By Chris Shaw
Just when various data began to paint a clearer picture of a softening Australian economy the July labour force numbers have again clouded the view, the increase in employment of 10,900 jobs for the month coming in around double the market’s expectations and showing the underlying economy continues to exhibit at least some strength.
While a change in the sample size for the data means it should not be compared too directly with previous jobs data, economist have taken the view the numbers confirm a trend of a gradual weakening in job growth but not one that will see unemployment spike higher anytime soon.
According to Westpac the July data suggest unemployment is likely to return to levels of 4.5-4.75% by year’s end, while economist Alex Joiner at ANZ Banking Group takes the view the pace of the trend is such unemployment is unlikely to be much above 5.0% by the middle of next year.
The real issue is how the market reacts to the numbers, as Commonwealth Bank senior economist Michael Workman notes the market had been pricing in three rate cuts totalling 0.75% basis points by the end of the year given previous weak economic data.
To achieve this it was increasingly being expected official interest rates would come down by 0.5% in September but according to TD Securities senior strategist Joshua Williamson this is now unlikely given the stronger than expected jobs data. ANZ’s Joiner agrees, seeing any rates cuts in coming months as limited and a 50-basis point cut in September as highly unlikely.
As Workman notes the data again highlight the fact there are both expansionary and contractionary forces at work in the Australian economy and this is making it more difficult for the Reserve Bank of Australia (RBA) to set the appropriate policy, which in turn means a conservative approach to any rate cuts can be expected.