Wednesday, 7 December 2011

Employment falters - again

The patchy nature of growth around Australia continues to show up in the labour force data. In the 8 months since March 2011, the unemployment rate has gone from 4.9% to 5.3%; full-time jobs have fallen around 75,000, part-time employment has risen by around 77,000 and total employment is up a wafer thin 2,000 (rounded). That's average monthly employment gains of a puny 300 - that's a tad disconcerting.

These jobs data fit with news elsewhere of slowing job ads and the deceleration in wages growth in recent times. While the labour market lags the economic growth cycle, it seems likely that the unemployment rate will edge up towards 5.75% by the middle of 2012 as the economy maintains a below trend growth rate. This will further free up capacity which will further dampen wages and with that inflation.

At this stage, there is not too much fear in any expectations that the unemployment rate will ratchet up beyond 6%. After, the RBA has correctly and pre-emptively started an interest rate cutting cycle and the moderation in wages growth will act to support labour demand. The assumption of a peaking unemployment rate below 6% is that monetary policy will turn accommodative in the first half of 2012 and that as a result, growth will edge up by end 2012 and in 2013, labour demand will also turn higher.

The result fits with the scenario of a few more rate cuts from the RBA into 2012 - for now, I will stick with the view that the RBA will be cutting to 3.5% by mid-2012. The recent run of data just go to show how well the RBA has been reading the economy and then putting into action policy changes without fear or favour.

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