Tuesday, September 08, 2009

We'll be spared a high unemployment rate, almost certainly

Not a single mainstream forecaster now expects unemployment to climb above 7.5 per cent, and most expect it to peak way below the official Budget forecast of 8.5 per cent with one tipping a peak mere points above the present 5.8 per cent.

Shane Oliver from AMP Capital is tipping a peak of just 6.3 per cent, way down from the 8 per cent he forecast just months ago because as he says, "the recession failed to arrive".

The ANZ job advertisement count jumped in August for the first time in 16 months.

Newspaper job advertisements rebounded 5.5 per cent and internet advertisements 4 per cent in a clear indication that employers have began to substitute hiring for firing...

This morning's Dunn & Bradstreet business survey finds that 5 employers are planning to boost staff for every 3 that are planning to cut back, a further sign that the labour market is turning.

Half of those surveyed expect an increase in sales and one third expect an increase in profits. Investment plans are the highest in two years and plans to boost inventories the highest in five years.

Dunn & Bradstreet chief Christine Christian said executives were expecting a strong Christmas, although there were "still some uncertainties about the speed with which Australia will return to sustained and significant growth."

Only 4 of the 17 leading forecasters surveyed by Reuters now expect the unemployment rate to touch 7.5 per cent, with most expecting a peak of 7 per cent or less.

Asked to explain his punt of a mere 6.3 per cent, Dr Oliver told the Age/Herald the recovery had broadened to the point where it was becoming self-sustaining.

"We had a massive shock this time a year ago that set off a downward spiral in confidence, spending and investment; spurred on by a collapse in trade."

"The stimulus measures primed the pump, but now business investment plans are climbing well into the future after the stimulus runs out. Consumers are continuing to spend even after the bonus money has run out, and house prices are climbing in suburbs well away from the First home Owners Boost. And exports are coming back."

Although Dr Oliver expects the unemployment rate to peak early next year, he warns it'll take a long time to come down.

"It is rare for unemployment to fall quickly," he says. "It'll probably take about 2 years to get back down to 5.5 per cent, which is what we had in April".

Published in today's SMH and Age