Australia | Aug 12 2010
Chris Shaw
Australian employment rose again in July in recording a gain of 23,500 jobs for the month, an outcome broadly in line with forecasts of an increase of around 20,000. Full time employment declined by 4,200, offset by an increase in part-time jobs of 27,500. Data for June were revised down to show jobs growth of 37,400, down from 45,900 reported previously. (Taking everything into account one would have to conclude that today's labour market update was thus slightly disappointing).
CommSec chief economist Craig James notes the data show the Australian unemployment rate rose to 5.3% from 5.1% previously. The increase is due to a gain in the number of people looking for work as the participation rate rose to 65.5% from 65.3% previously. James also notes average hours worked fell for the second straight month, declining in July by 0.5%.
In James's view, the data imply the economic slowdown has finally caught up with the job market, something that was inevitable given the fact consumers aren't spending, the housing market is slowing, businesses are more cautious and the services and construction sectors are currently going backwards.
What it means in his view is the Reserve Bank of Australia (RBA) lifted rates too far too fast, so taking some of the momentum out of the economy. This slowdown will continue until late this year, predicts James.
NAB Capital chief economist Robert Henderson was not as down on the numbers however, taking the view job growth is holding up nicely given an average increase in employment over the past three months of 25,000.
This should be viewed positively by the RBA in Henderson's view, as one policy goal has been to prevent the unemployment rate falling too rapidly given this could trigger increased competition for labour and therefore excessive wages growth.
Today's data should see the RBA remaining comfortably on hold with respect to official interest rates, in Henderson's view. James does suggest today's data mean the last remaining rationale for a rate hike in 2010 has now been taken away, with the outlook favouring the RBA remaining on the sidelines until 2011.
In ANZ's view, today's data suggest the Australian economy is ticking over nicely at present, but the key question is will employment growth re-accelerate in coming months. Any such move in the market would likely be of concern for the RBA in the bank's view given its implications for inflation.
Unlike some others in the market, ANZ sees risks to inflation as remaining to the upside at present, so given expectations of a pick up in business investment in coming months as well the bank still expects interest rates to rise to 5.0% by year's end.
Westpac notes the Australian dollar saw some selling on the increase in the unemployment rate, the currency dipping to USD0.8918 after the release. A further squeeze on the currency today remains possible in the bank's view, with any break of USD0.8870/80 leaving the dollar at risk of a deeper correction.
Westpac also notes the Australian bond market is now pricing in very little activity on interest rates for the rest of the year given the current year-end cash rate on the market of 4.53%.
