Australia | Sep 11 2008
By Chris Shaw
Just as equity markets have been volatile in recent months so too have Australia’s economic data, Commonwealth Bank senior economist Michael Workman suggesting the numbers have highlighted the ongoing battle between the expansionary and contractionary forces at work in the nation’s economy.
Today was a win for the expansionary forces as employment in August rose 14,600, well up on the 10,000 increase recorded in July and more than double market consensus of an increase of just under 6,000. The increase was fairly evenly spread, with full-time places increasing by 7,500 and part-time positions by 7,200.
The number means Australia’s unemployment rate is now at a near three decade low of 4.1%, down from 4.3% in July. But as ANZ Bank senior economist Katie Dean points out the change is in good part due to a slightly fall in tthe participation rate to 65.2% from 65.3% previously.
According to TD Securities senior strategist Joshua Williamson the data means any showdown in the Australian job market is far from clear, but given this is a lagging indicator it should begin to decline in coming months given GDP growth only really began to slow in the second quarter of the year.
What it also means in his view is it shows the Australian economy is not all that weak, which makes it problematic for the Reserve Bank of Australia with respect to being able to aggressively bring down official interest rates, particularly as a solid labour market means inflationary pressures will remain elevated.
Dean agrees, suggesting the data confirms the market’s negativity with respect to the outlook for the Australian economy has been overdone, a view shared by Workman who suggests today’s data should help restore some confidence in the state of the economy.
He notes the market continues to factor in one more cut to official interest rates this year and two more in teh first half of 2009 but according to Williamson this means the market has too much easing priced in next year. He sees a cut in October as still more likely than not to happen, while Dean sees it now as a close call next month but agrees there is likely to be one more cut sometime between now and the end of the year.
As Westpac notes the Australian dollar rose on the news and Williamson suggests it could move higher still in coming weeks as on his numbers the currency is heavily oversold at current levels, even allowing for the correction in commodity prices.
He expects as the market re-assesses the outlook for interest rates in coming months the Australian dollar will find support and bounce from current levels.