Australia | Aug 06 2009
By Chris Shaw
Economists got it very wrong with their forecasts for Australian employment in July, the consensus estimate of a fall in total employment of around 18,000 proving wide of the mark given the actual outcome was an increase of 32,200. The rise was driven by a 48,200 gain in part-time positions, which more than offset the 16,000 fall in full-time numbers.
AZN Banking Group economist Riki Polygenis suggests today’s data show the level of total employment in Australia is holding up far better than had been expected, especially given forward indicators continue to suggest a weaker outcome.
Commonwealth Bank senior economist John Peters agrees, taking the view the July numbers show the deterioration in the Australian labour market in the wake of the global downturn has been gradual rather than sharp, helped by lower interest rates and Federal Government stimulus measures that have lifted incomes and confidence for both businesses and households.
Polygenis suggested another reason was the increase in part-time employment, showing employers continue to prefer cutting hours worked rather than eliminate jobs completely. Westpac senior economist Anthony Thompson agrees, noting the full-time trend continues to deteriorate as hours worked data have fallen for the thirteenth month in a row.
One encouraging trend according to Polygenis was the pace of decline in full-time jobs has eased in recent months, the 16,000 fall in July comparing to declines of 23,400 in June and 34,600 in May. The end result of today’s data is no change in Australia’s unemployment rate, which remains at 5.8%, while the participation rate was also steady at 65.3%.
While unemployment remains in the “5’s” at present Peters is forecasting the rate will peak at around 7.0% or less this cycle, which compares favourably to the 10-12% unemployment rates posted in the recessions of 1982/83 and 1990/91.
According to Polygenis, today’s data are further evidence the downside risks to the Australian economy are diminishing, meaning a mild recession is the worst outcome but more likely is a downturn similar to the mid-cycle slowdown of 2000/01. This view is backed up by the fact the economy has only recorded a single quarter of negative growth in the current downturn.
In contrast to this, the current level of interest rates implies a far more serious downturn in Polygenis’s view, adding to the argument for the Reserve Bank of Australia (RBA) to start taking monetary policy back to a more neutral setting than is currently the case.
This means the statement tomorrow by the RBA will be important in giving a better indication as to how the central bank views the current outlook and policy settings, as Polygenis suggests the current dilemma is how to remove the level of policy stimulus when the recovery remains fragile as is presently the case.