Australia | Nov 12 2009
By Chris Shaw
Following strong September numbers Australian labour force figures for October again surprised on the upside, total employment increasing by 24,500 against expectations of a fall of around 10,000 and September’s 39,800 increase. Part-time employment drove the gains this month, rising by 21,500, while 2,900 full-time positions were added.
Westpac notes the increase in full-time positions was the first back-to-back monthly increase since June-July of last year, though as ANZ Banking Group senior economist Julie Toth notes the overall numbers imply a jobs growth rate of just 0.2% on both a month-on-month and year-on-year basis.
As well, Commonwealth Bank economist James McIntyre points out the fact hours worked actually fell in the month by 0.1% underlines the fact labour market performance of recent months has simply been consistent with the emerging recovery in economic activity, even though the headline numbers have been strong.
While the labour force figures were better than expected, Australia’s unemployment rate rose to 5.8% from 5.7% last month, though as Toth points out, the increase reflects demographic rather than economic factors as the size of the labour force is growing faster than the number of jobs being created.
Westpac points out the employment indices have yet to reach the 50-point level that is consistent with ongoing net job gains, but at a reading of 49 it implies there will be no more job shedding. As the labour force is growing faster, the bank is currently forecasting the unemployment rate drafts higher to a peak of around 6.5% in the middle of next year. However, today’s data suggest the risk is this measure peaks at a lower level as it implies the economy is continuing to accelerate. CBA’s McIntyre continues to see a peak in unemployment of 6.5% sometime in the second quarter of next year.
According to Toth the stronger data release vindicates the Reserve Bank of Australia’s decision to move earlier than other nations in lifting official interest rates, while it also increases the odds of a further hike at the RBA’s December meeting. This view is shared by Westpac and CBA’s McIntyre, who takes the view while there will be talk of a possible 50-basis point hike today’s data release is solid rather than spectacular, so making such a move less likely.
Toth then expects subsequent increases of a similar 0.25% magnitude in both February and March of next year to bring the cash rate to 4.25% by the end of the March quarter. The timing of further hikes beyond that time will depend on the state of the economy in 2010 as well as on the inflation outlook she suggests.
The Australian dollar rose on the news, Westpac noting the currency jumped to a new year high against the US dollar of US93.69c. Further gains are likely, the bank seeing US94c and US94.60c as the next likely targets.
