Australia | Dec 10 2009
By Chris Shaw
Momentum continues to build in the Australian economy as evidenced by strong labour force data for November. Today’s data showed a jump in total jobs of 31,200, well above market expectations that had centred on an increase of around 5,000 positions. Full-time jobs drove the increase, rising by 30,800, while part-time positions were largely unchanged for the month.
ANZ senior economist Julie Toth notes today’s data mean Australian employment is now at its highest ever level of better than 10.8 million, while the November data marked the strongest monthly outcome in annual terms since February of this year. The data in trend terms were also better, total monthly jobs increasing by 0.2% month-on-month and by 0.4% in year-on-year terms.
Toth points out this implies trend employment growth appears to be closing the gap between net jobs growth and labour force growth, something that needs to occur before the unemployment rate can fall significantly.
In the view of Westpac senior economist Anthony Thompson, today’s data may reflect something of a catch up given pent up demand from around the middle of the year as well as the rapid turn around in business confidence levels. He also suggests ongoing growth in the population and labour market participation rates will lift the rate of labour force growth, which is likely to see unemployment plateau sometime in 2010.
Thompson now suggests this could be at a rate somewhere below 6.0%, meaning unemployment may already be at or near its peak for the cycle. Commonwealth Bank senior economist Michael Workman agrees, taking the view with unemployment edging down to 5.7% this month it appears the unemployment rate peak for the cycle could be the 5.8% outcomes recorded around the middle of the year. This compares very favourably to the 10% rates being recorded in both the US and Europe.
ANZ’s Toth is not quite so bullish, suggesting the growth in the population and the labour force mean unemployment should continue to rise, but in her view it now looks unlikely to increase beyond 6.5% next year. Having said that, she notes today’s data represent good news overall as the labour market is traditionally the last segment of the economy to react positively following a downturn.
There are interest rate implications from today’s data, Thompson suggesting the surprising outcome increases the chances of the Reserve Bank of Australia (RBA) hiking rates in February by a further 0.25%, so bringing the cash rate to 4.0%. The market agrees as it is now pricing in a 50% chance of such a move.
CBA’s Workman takes the view the data support a more aggressive course of action by the RBA, with 0.25% increases in interest rates likely in his view at both the February and March meetings as the economy continues to build momentum and more upside surprises are expected.
Toth on the other hand sees one rate increase to 4.0% in the first quarter of 2010, though she suggests the increasingly positive economic data imply a greater chance the RBA brings rates back to a neutral setting of a little above 5.0% for the cash rate at a quicker pace than had previously been expected.
The Australian dollar jumped on the employment data, Westpac noting it rose from just above US91c to around the US91.60c level. Tompson suggests further gains to around the US92.60 level are possible in the near-term given recent relative movements in interest rates have been in the Aussie dollar’s favour.