Friday, June 13, 2008

At last, the jobs market pauses for breath


Some people think this is a disaster.


Heat has come out of the Australian jobs market for the first time in nearly two years, raising the prospect that the Reserve Bank's program of interest rate rises is having the desired effect.

News yesterday that the number of Australians in jobs had dipped for the first time in 19 months sent the Australian dollar diving almost one complete US cent as traders came around to the view that further rate hikes by the Reserve Bank might be unnecessary.

The jobs news follows news on consumer confidence, retail spending and borrowing all of which points to a tightening of consumer belts.

The Reserve Bank has been aided in slowing the economy by private lenders who have imposed their own rate hikes, and by soaring oil and food prices that have cut income available for spending elsewhere.

Most of the jobs lost last month were in only one state – NSW, which lost 17,300 of the 19,700 jobs lost nationally.

The ACT lost fewer than 200 jobs...

...while Victoria, Queensland and Tasmania actually gained jobs.

The ACT remains the only state or territory with fewer people unemployed than jobs on offer and has by far the lowest unemployment rate – 2.3 per cent.

Every other state has an unemployment rate above 3 per cent with Western Australia, Tasmania and Queensland on 3.6 per cent, 3.7 per cent and 3.8 per cent.

Victoria and New South Wales have unemployment rates of 4.3 and 4.8 per cent and South Australia has an unemployment rate of 5.1 per cent.

The national rate was steady at 4.3 per cent.

The Opposition employment spokesman Julie Bishop blamed the dip in jobs last month on “the Rudd Government’s ability to manage the economy and uncertainty about the return of unfair dismissal laws and compulsory collective agreements”.

But trend figures released by the Bureau of Statistics show that employment is likely to continue to grow at the rate of 10,500 jobs per month.

Westpac's Senior Economist Anthony Thompson said that while the rate had slowed appreciably it was “hardly collapsing”.

The number of jobs was continuing to grow faster than the number of people offering themselves for work, limiting upward pressure on the unemployment rate.

Nevertheless financial markets took the news to mean that Reserve Bank's interest rate rises to date were having the desired effect and would not need to be extended.

The dollar dived from 94.7 US cents to 93.8 US cents on the news and the futures market cut the implied probability of an interest rate hike later this year to less than 50 per cent.

Other figures released yesterday raised the prospect of “stagflation” should the jobs market stall, with the Melbourne Institute's inflation expectations survey posting the worst result since the survey began in the early 1990's.

The typical inflation expectation is now 5.9 per cent, up from 5.2 per cent in May.

The proportion of consumers expecting inflation to fall back to within the Reserve Bank’s target band fell for the sixth consecutive month.

Only 8 per cent of people expect the Reserve Bank to have success in reigning in inflation, the lowest proportion since the introduction of the Goods and Service Tax in 2000.

Stagflation is the combination of shrinking employment and rising inflation last experienced during the oil-price hikes of the 1970s.

It would make life difficult for the Reserve Bank because it would limit its ability to use high interest rates to control inflation without putting Australians out of work...

...while Victoria, Queensland and Tasmania actually gained jobs.

The ACT remains the only state or territory with fewer people unemployed than jobs on offer and has by far the lowest unemployment rate – 2.3 per cent.

Every other state has an unemployment rate above 3 per cent with Western Australia, Tasmania and Queensland on 3.6 per cent, 3.7 per cent and 3.8 per cent.

Victoria and New South Wales have unemployment rates of 4.3 and 4.8 per cent and South Australia has an unemployment rate of 5.1 per cent.

The national rate was steady at 4.3 per cent.

The Opposition employment spokesman Julie Bishop blamed the dip in jobs last month on “the Rudd Government’s ability to manage the economy and uncertainty about the return of unfair dismissal laws and compulsory collective agreements”.

But trend figures released by the Bureau of Statistics show that employment is likely to continue to grow at the rate of 10,500 jobs per month.

Westpac's Senior Economist Anthony Thompson said that while the rate had slowed appreciably it was “hardly collapsing”.

The number of jobs was continuing to grow faster than the number of people offering themselves for work, limiting upward pressure on the unemployment rate.

Nevertheless financial markets took the news to mean that Reserve Bank's interest rate rises to date were having the desired effect and would not need to be extended.

The dollar dived from 94.7 US cents to 93.8 US cents on the news and the futures market cut the implied probability of an interest rate hike later this year to less than 50 per cent.

Other figures released yesterday raised the prospect of “stagflation” should the jobs market stall, with the Melbourne Institute's inflation expectations survey posting the worst result since the survey began in the early 1990's.

The typical inflation expectation is now 5.9 per cent, up from 5.2 per cent in May.

The proportion of consumers expecting inflation to fall back to within the Reserve Bank’s target band fell for the sixth consecutive month.

Only 8 per cent of people expect the Reserve Bank to have success in reigning in inflation, the lowest proportion since the introduction of the Goods and Service Tax in 2000.

Stagflation is the combination of shrinking employment and rising inflation last experienced during the oil-price hikes of the 1970s.

It would make life difficult for the Reserve Bank because it would limit its ability to use high interest rates to control inflation without putting Australians out of work.