A string of good or at least better-than-expected data this week has dimmed expectations for a rate cut next month, but a worsening of the European debt crisis would likely force the central bank’s hand, economists say.
CommSec economist Savanth Sebastian says yesterday’s official job figures showing the unemployment rate had dropped by 0.1% to 5.2% had “muddied the waters to some degree”, but a rate-cut decision would be driven by events in Europe.
“If the RBA is going to cut rates, it’s going to be on global concerns rather than domestic conditions,” Sebastian says.
“And if the Reserve Bank policymakers do cut rates, it’ll be to shore up confidence rather than provide stimulus,” using the example of the Reserve Bank of New Zealand’s decision to slice rates after the Christchurch earthquake.
Sebastian notes that jobs growth detailed in yesterday’s ABS figures – with 20,400 new jobs created, including 10,800 full-time jobs – mainly came from the mining states.
There were 7,300 new jobs in Western Australia, and 4,900 new jobs in Queensland, plus growth in Victoria (3,400) and South Australia (900). New South Wales lost 1,300 jobs, and Tasmania lost 400.
The number of part-time jobs, up 9,600 to 3.41 million, was a record. The participation rate was steady at 65.6%.
The ABS figures follow a better-than-expected National Australia Bank business survey released on Monday.
CommSec’s Savanth Sebastian says although the RBA has watered down its rhetoric on monetary policy in recent weeks because of the turmoil overseas, it would likely be interested in sitting on the sidelines because of Australia’s robust terms of trade.
“We’d be advocating view rates on hold, but if we see external shocks then a cut is likely on the cards,” Sebastian says.
Leaving rates on hold at 4.75% last week, the Reserve Bank last week drew attention to the “softer” labour market and consumers “more concerned about the possibility of unemployment rising”.
But Westpac Banking Group says yesterday’s job numbers “reflect the statistical noise you would expect in a soft labour market that does not have a strong trend.”
“We forecasted positive jobs numbers for September, mindful that it took the post GST volatility (back in 2000) to generate three consecutive monthly negative prints on jobs. Even the GFC could not do it,” Westpac says.
The bank describes the Australian labour market as “soft rather than robust or collapsing.”
“The Australian economy has shed close to 5,000 jobs over the last six months so it is clear the labour market has going through quite a soft patch,” it says.
“We are forecasting the unemployment rate to peak at 5.75% by mid-2012. While WA is set to improve, and QLD should lift from here, the drag from the southeast (VIC and NSW) will be enough to see a rise in overall unemployment.”
ANZ says the result “certainly doesn’t change the story that trend employment growth has weakened considerably in the last six months.”
“It would be a brave forecaster that suggested that this signals a turning point, given leading indicators of employment (such as the ANZ job ads series) remain soft,” its senior economist Craig Michaels says.
Michaels says the rebound serves as a “welcome stabilisation” for the RBA, and might give the central bank confidence that the boom states and match the sort parts for the time being.
“Whether the RBA will give greater credence to the leading indicators of employment, which currently point to a further modest rise in the unemployment rate, will be a key determinant of the outcome of the Melbourne Cup policy deliberations,” he says.
“Despite today’s bounce, we think weak leading indicators for employment, flat trend employment growth and the now weaker outlook for inflation means there is scope for the RBA to deliver an ‘insurance’ rate cut next month, given still heightened global uncertainty.”
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