Tuesday, 10 January 2012

Job Vacancies Fall - So Too Will Interest Rates

The ABS measure of job vacancies slumped 3.3% in the 3 months to November to be down 6.3% on the level a year ago.  The decline fits with the slide in the ANZ measure of job advertisements which started weakening around the middle of 2011.

It's yet another sign of the softness in the economy and highlights the downside risks to employment - and upside risks to unemployment - as the growth muddles along at a below trend pace.  It is yet another indicator that not only validates the pre-emptive rate cuts from the RBA in both November and December, but also underscores the importance of further interest rate cuts in the months ahead as weaker employment leads to weaker wages pressures leads to lower inflation pressures.

Further RBA action to the point where the cash rate falls to around 3.5% by mid-year (from 4.25% now) should do the trick.  That will likely be enough to stop the unemployment rate going above 5.75%, it will also underpin a pick up in growth in the latter part of 2012 and should fit nicely with the RBA medium term inflation objectives.

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