Perhaps he shouldn't
Reserve Bank deputy governor Ric Battellino has an answer to those who say they are concerned by rising unemployment: He doesn’t believe it.
Australia’s unemployment rate has climbed from 5 to 5.3 per cent since the start of the year. The Bureau of Statistics says the number of unemployed has climbed 31,000.
But the deputy governor says “other aspects of labour market numbers that have a stronger feel”. Addressing a Euromoney magazine conference in New York (the same magazine that made Wayne Swan Finance Minister of the year) Mr Battellino said the employment survey also showed solid growth in the total numbers of hours worked.
Suspiciously the recent rise in unemployment had been “most pronounced in the resource-rich states”, suggesting growing unemployment was not widespread and is not the result of a two-speed economy.
And independent evidence didn’t tally with the Bureau’s figures. As Battellino told the NewYorkers, “the number of people on unemployment benefits does not
point to any rise in unemployment”.
He’s right. Since the start of this year while the Bureau’s estimate of unemployment has climbed 31,000, the number of Australians on NewStart fell 30,000...
Neither measure is necessarily more accurate. NewStart doesn’t extend to everyone who is unemployed. The Bureau surveys only 29,000 of the nation’s 8.6 million households.
The deputy governor’s summation: “All this suggests more information is needed before we can draw any firm conclusions about whether or not the labour market is weakening.”
The reticence is important. Along with inflation, employment is the key indicator targeted by the Bank. The “maintenance of full employment” is one of the goals etched into metal on the mural that greets Reserve Bank staff as they walk through the foyer into their offices each morning.
Until the Bank can be certain employment is about to fall there’s not much chance of it cutting rates.
The market thinks it will. Last night it was pricing in two interest rate cuts by the end of the year.
But Battellino told the conference there were “technical reasons why current market pricing may not be giving an accurate picture of interest rate expectations”.
The market had been wrong before. Between late 2002 and late 2003 it priced in cuts that never took place.
Until a clearer picture emerged, the Bank would keep an “open mind”.
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