Friday, May 11, 2012

A sudden pick up in employment?

But note: The jobs growth figures have been wrong for two or so years - Colebatch has cracked it

The odds of a June interest rate cut have dramatically weakened following a surprise jump in employment which has pushed Australia’s unemployment rate down to 4.9 per cent.

The dive below 5 per cent is in start contrast to the budget forecasts released Tuesday which had unemployment climbing to 5.25 per cent by June and then higher to 5.5 per cent.

“It now looks as though unemployment peaked last August,” said HSBC economist Paul Bloxham. “The data suggest an improvement in the economy after a soft patch late last year. I expect the Reserve Bank to be on hold for the rest of the year.”

The April jobs figures follow March retail figures released Monday showing a surge in spending since the start of the year.

Stephen Koukoulas, a former advisor to prime minister Gillard who has been urging a June rate cut said the news was a “game changer” for the Reserve Bank.

“Having cut 0.50 points in May, a follow up 0.25 points in June when there is fresh news showing good growth in employment should see the Bank move back to hold, for now at least"...

“To be sure, there are still very valid reasons why interest rates are likely to move lower – global economic problems and market ructions. The contraction about to hit the economy from the budget will give the Reserve Bank room.”

“But for now retail sales and employment are so much better than expected that the Bank can sit tight.”

The Australian dollar, previously struggling near 100 US cents, climbed above 101 on the release of the data. The share market climbed 0.48 per cent. Futures traders cut the chance of a June rate cut from 92 to 60 per cent.

Treasurer Wayne Swan embraced the news as “a resounding endorsement of our economy and a resounding endorsement of our jobs record”.

“Australia now has more people in work than ever before, with an unemployment rate of 4.9 per cent,” he told parliament.

Employment minister Bill Shorten was more cautious describing the news was "surprisingly good”.

“But no one from the government is trying to sell some sort of blue-sky scenario,” he added. "Parts of Australia are doing badly or not doing as well, we also know that unemployment is most likely to increase, we also know that the high dollar has had a big impact."

The Bureau of Statistics figures show a further 15,500 Australians gained jobs in April after 37,600 gained jobs in March.

Western Australia has accounted for all of Australia’s employment growth over the past year, gaining 47,300 extra jobs. Changes in the rest of the nation have roughly cancelled each other out. Queensland has gained 15,200 jobs while Victoria has lost 16,600. NSW has gained just 500.

Christopher Joye, a strategic advisor to Yellow Brick Road Funds Management said it was “interesting to contemplate” what the Reserve Bank might have done at its May board meeting had it known about the employment figures and the May budget.

“At face value, the super-sized 0.50 point cut would have been off the table,” he said.

Published in today's SMH and Age

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