Australia | Jan 14 2010
By Chris Shaw
December labour market data suggest Australia’s unemployment rate has peaked at less than 6.0% this cycle, a fantastic result in the post-GFC global context according to ANZ Banking Group economist Dr Alex Joiner.
Employment rose strongly again for the month with a total of 35,200 jobs added, consisting of 7,300 full-time positions and 27,900 part-time positions. Joiner notes this means in seasonally adjusted terms there has been growth of 0.3% month-on-month and 1.0% year-on-year.
The result was around three times higher than the consensus market expectation of a 10,000 job increase, beating even the forecast by both ANZ and Westpac that topped market estimates with an expected increase of 30,000 positions. Australian employment is now at its highest ever level of 10.91 million.
While the rate of full-time job creation fell from the 31,100 increase recorded in November, Westpac senior economist Anthony Thompson points out full-time jobs have still risen by 78,300 positions over the past four months. The participation rate was unchanged at 65.2%, meaning the unemployment rate fell to 5.5% against the market’s consensus estimate of a rate of 5.8%.
Thompson notes short-term leads suggest some consolidation of the recent job gains in the near-term, but today’s data see him also take the view Australia’s unemployment rate has peaked, supported by expectations of accelerating growth in the economy through the coming year.
Today’s data, along with solid retail sales leading into Christmas, are likely to give the Reserve Bank of Australia (RBA) some food for thought according to Joiner, which means a 0.25% interest rate hike in February is now a serious prospect. He suggests if the hike doesn’t occur at next month’s meeting, it is all but a certainty to come before the end of the March quarter.
Thompson agrees, seeing a tightening labour market as increasing the pressure on the RBA to lift rates by 0.25% in February, a move he expects will be followed by a further total of 0.50% of increases in the June quarter. After that Thompson expects the RBA will pause to assess the impact of the hikes to date.
CommSec chief economist Craig James suggests today’s data may increase the worry of policymakers and businesses that the job market is tightening too quickly, as full employment implies an unemployment rate of 5.0% and that is now not too far away. On the plus side greater job security should mean a pick up in consumer spending and overall economic activity
This in turn should give the RBA greater confidence to continue lifting interest rates back to more normal levels of around 4.5-5.0%, so James expects the RBA will have the cash rate back to the 4.25-4.50% range by the middle of this year.