Jobs growth has stalled, slipping way below the rate of population growth, throwing budget forecasts into doubt and prompting new talk of a series of interest rate cuts.
The latest jobs figures for July show employment inching ahead a mere 26,000 over the entire six months since January. By contrast throughout much of 2009 employment was surging at an average pace of 39,000 per month.
Since January employment has been climbing at an annualised pace of just 0.5 per cent. The May budget forecast employment growth of 1.75 per cent. The Bureau of Statistics says the population of employable Australians is growing at an annualised rate of 1.24 per cent.
“The data is worse than it looks,” writes Goldman Sachs economist Richard Coppleson in a note to clients. “Full time employment is falling, and that’s probably a better measure of underlying conditions. Unemployment has climbed from 4.9 to 5.1 per cent. It is clear it won’t settle there.”
Goldman Sachs has abandoned its previous forecast of an interest rate increase and is now predicting two interest rate cuts by Christmas...
“Although the exact timing will be subject to emerging news flow, we believe that the Reserve Bank will favour a September interest rate reduction of 0.25 percentage points followed by a further 25 percentage points reduction in November. This will be sufficient to take broader financial conditions from a moderately contractionary setting to a moderately expansionary setting,” Mr Coppleson said.
Goldman Sachs joins Westpac which since July has been predicting a series of four interest rate cuts over the next twelve months.
Futures trading yesterday pushed up the implied probability of rate cut next month from 79 to 91 per cent.
The market is pricing in five rate cuts within a year.
“These job numbers could could put the cat among the pigeons,” said BT securities economist Chris Caton. “While the economy still looks ‘okay’, the upward move in unemployment is ominous. Recall that recessions usually start from a low level of unemployment.”
“Building approvals and retail trade are weak, and consumer sentiment has fallen off a cliff. Last week, the Reserve Bank made it clear it was still concerned about inflation, but so much has changed since then.”
NSW has lost 25,600 jobs since January and Queensland 6100. In contrast Western Australia has taken on 19,000 more workers and Victoria 17,400.
Victoria suffered a reversal of fortune in July shedding 20,700 of its previous gain.
Premier Ted Baillieu said the reverse showed showed the government should cancel its planned carbon tax.
“Business and consumer confidence has been affected by the announcement of the carbon tax by Labor and this has added to the pressure the high Australian dollar had already placed on business,” a spokesman said.
NSW reversed its run of job losses, gaining 19,700 workers.
The national figures show a drop of 22,200 in full-time employment in July offset by a jump of 22,100 in part-time employment.
The Bureau of Statistics said in its view the 30,000 extra part-time census workers it put on at the start of July would not have skewed the result.
“We can't we can't be certain but that’s what previous experience suggests,” a spokesman said.
Most census workers are already employed.
Market economists expect Australia’s unemployment rate to climb from 5.1 to 5.25 per cent by year’s end.
Published in today's SMH and Age
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