Australia | Dec 10 2009
By Rudi Filapek-Vandyck
Westpac economists report consumers’ unemployment expectations in Australia rose moderately in December for the second straight month. In terms of the underlying trend, following eight consecutive falls previously, the rapid downtrend since peaking in February 2009 continued, say the economists.
The unemployment expectations index rose 3.1% in December to 119.05 after a 2.8% rise previously, but this still leaves the index 35.0% below its February peak. Here too the trend decline continued, falling 3.7% mth to be down 38.6% from their February trend peak.
Westpac economists say they prefer to assess this index via a smoothed trend deviation from its full history average as a guide for annual employment growth seven months ahead. This deviation measure continued to fall (as it is smoothed) for the ninth consecutive month to minus 8.1% in December from minus 4.8% in November. This marks the lowest smoothed trend reading since February 2008.
With the deviation measure of unemployment expectations having peaked in March 2009, the data remain consistent with the economists’ employment prognosis that says annual jobs growth troughed in Q3 2009.
However, just as annual jobs growth did not deteriorate by anywhere near the extent implied by the deviation measure’s peak (its peak deviation of 44.5% historically would have been consistent with a trough in annual jobs growth as weak as minus 3½%yr!), the economists do not expect jobs growth to reaccelerate by the extent implied by the series since it has turned.
Spare capacity in the labour force from the weakness in average hours worked during the slowdown should temper the pick up in jobs growth. Nevertheless, Westpac does expect annual jobs growth to rise from a negative 0.1%yr in Q3 2009 to a positive 1.0%yr in Q2 2010 and a positive 1.5%yr in Q4 2010.
Despite the third consecutive rate hike from the RBA last week, consumers’ inflation expectations rebounded in December to 3.6% from 3.2%. Westpac economists point out this is the highest reading since October 2008. They add this bounce failed to prevent the uptrend since March 2009 stalling. Trend inflation expectations were steady at 3.52%.
The expectation of managers and professionals also bounced to 3.6% from 3.3%, but their uptrend since March 2009 also stalled, at 3.60% (vs 3.62% prev). The proportion of consumers expecting prices to fall fell 0.1ppts and the proportion expecting unchanged prices fell 3.5ppts, with a 2.8ppt rise in the proportion expecting prices to rise and a 0.7ppt rise in the proportion responding “don’t know”.
Within those expecting prices to rise, there were increases in the proportions nominating above-target inflation predictions. The proportion expecting inflation of 6-9% rose 0.8ppts, the proportion saying 10% rose 2.4ppts and the proportion saying 10%-plus rose 1.9ppts. Consequently, with lower proportions expecting prices to fall or remain unchanged, there was a 1.0ppt fall in the proportion expecting inflation within the 2% to 3% target band to 17.7%, although this remains well above the twelve month average of 13.4%.