Australia | Oct 08 2009
By Chris Shaw
While some in the market had suggested the Reserve Bank of Australia (RBA) moved too early in lifting interest rates earlier this week, it now appears to have been a prudent move as September labour force data came in much better than the market had been expecting.
Total employment rose 40,600, well above market expectations of a fall of around 10,000, with both full time and part time employment increasing. The former was up 35,400 compared to the fall of 30,500 recorded in August, while the latter rose by 5,200 positions.
The numbers caused unemployment to fall by 0.1% to 5.7% against a market expectation of a rise to 6.0%. It was especially a surprise given the participation rate rose by 0.1% to 65.2%. With the sharp increase in full time jobs, aggregate monthly hours worked increased by 0.9%. Commonwealth Bank economist James McIntyre saw this as the most interesting aspect of the data as he regards hours worked as the best indicator of the health of both the labour market and household spending power, making the increase a very positive one.
While full time trend employment continues to fall, the fact it rose for the month is significant according to ANZ Banking Group acting chief economist Warren Hogan. He points out if the increase in full time numbers reported today becomes an ongoing trend, this will be a clear sign the worst of the employment downturn has passed.
The magnitude of the gain is also important as Hogan notes it takes job creation of around 15,000 positions each month to keep unemployment steady, so the September data offer an early indication the unemployment rate may actually peak sometime in late 2009.
This would be earlier than most experts had been expecting, but as Hogan points out and as Westpac agrees, the monthly labour force data remain very volatile and so must be considered with some caution. As an example, Westpac points out both New South Wale and Victoria recorded gains for September in the number of full time jobs, but the sum of the state numbers was below the aggregate published increase.
Westpac notes the Australian dollar bounced on the news, pushing through the US90c level immediately after the number was released. It expects the currency will continue to gain on the US dollar as it sees today’s data as adding weight to its view the RBA will lift rates by a further 0.25% in November. The bank sees risk its one-month forward forecast for the currency of US92c against the US dollar will be reached sooner rather than later.
While Hogan didn’t set a timetable for a further rate hike by the RBA, he also took the view today’s data are likely to give the central bank greater conviction to raise rates with a greater sense of urgency.
In McIntyre’s view, today’s data validate the first RBA hike in rates and support the case for a further increase in November. His confidence this occurs has risen, especially given data between now and then such as consumer and business confidence levels, motor vehicle sales and the CPI for the September quarter are unlikely to present a case for rates to be left unchanged.