Australia | Nov 06 2008
By Greg Peel
Australian data released in the past week or so have been nothing short of depressing, signalling that an economic slowdown is rushing upon us. Indeed, the Reserve Bank of Australia noted as it cut the cash rate by 75 basis points on Tuesday that economic activity had begun to slow faster than anticipated even after the 100 point cut of the previous month (although it is appreciated that rate cuts take at least six months to take effect). Hence the RBA elected for a cut of 75 points, rather than the 50 expected.
Today the Australian Bureau of Statistics October jobs numbers were released, and economists had set themselves for an equally dour result. Consensus was for a loss of 10,000 jobs. There was thus much surprise when the result came out as an increase of 34,300 jobs. The official unemployment rate remains at 4.3%.
Now economists will always quickly tell you that employment figures are notoriously volatile, and often frustrating when numbers disagree with logical forecasts. But even taking this into account, the general response from today’s number is that the bad numbers are yet to come.
Westpac, for one, had previously suggested that Australia won’t see a sudden reduction in employment straight away given the very low level of unemployment we had previously reached. For a long time there everyone from gold miners to restaurants were struggling to find sufficient labour/staff, so it was unlikely employers would quickly start laying off at the first sign of an economic cycle peak. This is particularly so where certain skill sets are required. Westpac’s modelling suggests resilience in the second half of 2008.
But that’s where the story ends. Recent weak data suggest a rapid deterioration in employment ahead – none more so than collapsing consumer confidence, which is a leading indicator rather than a lagging one.
Watch out for the first half of 2009 therefore, when Westpac assumes unemployment will jump from 4.3% to 5.1%, then on to 5.7% by the end of 2009 and 6.1% by mid-2010.
You won’t get an argument out of ANZ. ANZ’s economists were surprised by the moderate response to slowing economic conditions to date but suggest that labour market conditions will turn “more convincingly” in coming months. Their ongoing unemployment forecasts closely mirror those of Westpac, although ANZ is further assuming 6.5% unemployment by end-2010.
ANZ also offers that the Federal Treasury’s forecast, released yesterday, of unemployment creeping to only 5.75% by mid-2010 is “overly optimistic”.
One is tempted to suggest that the RBA might view the employment data as a reason to ease off on the cutting in December – perhaps just a 25 point cut – but a month is currently a long time in the market. The way things are heading there is no reason yet to believe the RBA would not cut by another 75-100 points in December if it felt it had to.