Thursday, June 07, 2007

2,000 new full-time jobs per day! No wonder we'll have a rate hike by August.

The Treasurer Peter Costello has raised the prospect of Australia running out of workers after the release of official employment figures that have blown his budget forecasts out of the water intensified speculation about a hike in interest rates.

According to the statistician, an extra 66,800 full-time jobs were created in the month of May – an extraordinary rate of growth that if correct would mean that more than 2,000 new full time jobs were created each day, roughly half of them new and roughly half at the expense of part-time jobs.

The surge brings the number of Australians in jobs to a new record high of almost 10.5 million.

Australia’s rate of unemployment has plunged to another generational low, sliding to 4.2 per cent, the lowest rate in 33 years.

In some parts of Australia the rate is even lower. Western Australia and the ACT have unemployment rates close to 3 per cent. Late yesterday Westpac forecast that within the financial year ahead Australia itself would have an unemployment rate beginning with the number 3...

The May budget had forecast of an average unemployment rate of 4.75 per cent during financial year (a figure that will now be impossible to achieve) and 5 per cent next financial year.

Mr Costello said he had been taken by surprise by the news and that at some point Australia would “just run out of employees”.

“People were saying in the mid-1990s that we would be at full employment if we were at 6 or 7 and now we are at 4.2 per cent. How low can unemployment go? Well the critical question is – how low can unemployment go without setting off inflation?”

The Treasurer said that the economy had become highly calibrated and highly delicate. “One missed cue, one misfire on industrial relations will set off inflation and bring this all to an end. This is like a highly engineered racing car. One missed cue, you take one corner a foot too wide and it will crash.”

Asked whether that was a proposition that should make people feel nervous he replied that was is “a proposition that says you need a good experienced driver in control of this highly calibrated economy. And I will tell you what I wouldn’t be doing, I wouldn’t be putting an ‘L’ plate driver in the cockpit at the moment”.

Financial markets now consider the Reserve Bank certain to push up interest rates, with the weight of money now pointing to a hike before the election. Trading on the futures market after the employment numbers pointed to a 45 per cent possibility of an interest rate in July and an 85 per cent likelihood of a hike in August.

The Reserve Bank Governor Glenn Stevens is expected to give an indication of the Bank’s thinking at a keynote address in Brisbane next Thursday.

The expected interest rate hike of 0.25 per cent would push up the monthly repayment on a $400,000 mortgage by $60, making it $320 higher than at the time of the last election, fought and won by the Coalition on the promise of “keeping interest rates low”.