Australia | Sep 09 2010
By Rudi Filapek-Vandyck
A stronger than expected update from the Australian jobs market is bound to have attracted the attention of policymakers at the Reserve Bank of Australia. In fact, today's strong jobs report might have made a few people a little less comfortable than before.
It has been my personal view that the RBA is firmly on hold post the last interest rate hike in May this year. There simply is too much uncertainty regarding the global economic slow down and while on the local level miners and developers continue spending money on tomorrow's volume increases, most other Australian consumers and companies are doing it tougher, especially those on the East Coast.
Thus the RBA, in all its wisdom, has elected to retreat to the sidelines in what can easily be called the Great Interest Rate Debate in Australia, and wait for things to come. Commentary and speeches since May have signaled the Reserve Bank is pretty confident it has been making all the right decisions so far, and policymakers are comfortable with their current position.
Yet, most economists do not believe this situation can last for long. While most have been forced to delay their forecasts for further hikes since May, virtually no economist has given up on the idea that interest rates will still need to rise in the not too distant future.
Today's labour market report showing the Australian economy added a total of 30,900 new jobs in August is bound to see most of these economists to exclaim: See!
With market expectations prior to today's release at around 24,000 new jobs, the Australian labour market continues to surprise to the upside. This is especially the case since the details behind the headline figure suggest the market is going from strength to strength.
Part time jobs actually declined in August, there was no impact from the Federal Elections and the unemployment rate fell to 5.1%, the lowest rate since January 2009. Economists at ANZ Bank are quick in pointing out the unemployment rate is rapidly approaching a level that is deemed to be inflationary. (Think 5% or lower).
And that, of course, would also have caught the attention of RBA policymakers.
History suggests, add those ANZ economists, it is unusual for households to increase savings while unemployment is falling. This suggests the RBA’s projections for household spending, economic growth and inflation might prove too conservative.
This is why the Australian dollar is trading above US$0.92 today.