Jobless rise no guarantee of rate cut, economists say
The unemployment rate rose to 5.4 per cent in December from an upwardly revised 5.3 per cent in November, as the number of employed people fell by 5500, the Bureau of Statistics said. Full-time employment decreased by 13,800 to 8.1 million. Part-time employment rose by 8300 to 3.4 million, driven by a rise in male part-time workers.
New South Wales and Victoria added 8000 and 14,000 jobs respectively, while Queensland recorded 22,900 job losses.
Economists said while total employment numbers had fallen more than expected, the Reserve Bank had anticipated the rise as the number of people entering the market exceeded the number of jobs being created.
"We don't think these are the kinds of numbers that would induce a rate cut from the RBA soon," said CommBank senior economist Michael Workman.
"They've been indicating for six to nine months while they [were cutting] rates that these were the kinds of outcomes they were expecting on the jobs market. So we've ended up with a 3 per cent cash rate because of the expectation that this was going to happen."
The market has priced in at least one more interest rate cut this year after the Reserve Bank's easing to 3 per cent in December. But analysts said a cut was more likely in March rather than next month.
"We believe that the Reserve Bank will need further evidence of economic weakness before they act," ANZ senior economist Riki Polygenis said. "In particular, we think they would like to see capital expenditure in intentions, which comes out in late February. We will get the first read for 2013-14, and the outlook for investment in the non-mining economy is critical."
Ms Polygenis said by early March, the RBA would have further data on retail sales and the labour force, which would give it a clearer view on the employment trend.
Economists expect the unemployment rate to rise in 2013 as the mining investment boom peaks and the Australian dollar remains strong.
More than 1000 jobs were axed this week alone. On Wednesday, building products maker Boral said it would cut 700 office jobs, while BlueScope Steel outlined plans on Monday to sack 170 workers as part of a reconfiguration of its Hastings plant in Victoria.
Vodafone is to close or rebrand the Crazy John's chain of mobile phone stores by February 20, putting at risk about 300 jobs.
Last week, the National Australia Bank tipped the unemployment rate to rise to about 5.75 per cent later this year, and slashed its interest rate forecasts for 2013 from 3 per cent now to 2.25 per cent by the September quarter.
ANZ said it also expected the unemployment rate to rise to about 5.75 per cent by mid to late 2013.
Frequently Asked Questions about this Article…
The December data showed the unemployment rate rose to 5.4% from an upwardly revised 5.3% in November. Total employed people fell by 5,500: full‑time employment decreased by 13,800 to 8.1 million, while part‑time employment rose by 8,300 to 3.4 million, driven by an increase in male part‑time workers.
Economists quoted in the article say the higher jobless rate is evidence of a softening economy but not weak enough on its own to force an RBA rate cut next month. CommBank senior economist Michael Workman said these numbers aren’t the type that would induce an immediate cut, and analysts expect any next cut is more likely in March rather than immediately.
Analysts say the RBA will seek further evidence of economic weakness before acting. ANZ senior economist Riki Polygenis highlighted capital expenditure intentions (released late February) as important, along with upcoming retail sales and labour force data due by early March, which should give a clearer view of employment trends.
After the RBA eased its cash rate to 3% in December, the market has priced in at least one more interest rate cut this year. However, analysts mentioned in the article think a cut is more likely to occur in March rather than next month.
The article lists several company actions: building products maker Boral said it would cut 700 office jobs; BlueScope Steel outlined plans to sack 170 workers at its Hastings plant in Victoria; and Vodafone plans to close or rebrand the Crazy John's chain by February 20, putting about 300 jobs at risk.
Regionally, New South Wales and Victoria added jobs (about 8,000 and 14,000 respectively), while Queensland recorded 22,900 job losses. Sector notes in the article point to manufacturing, building products and retail/mobile stores being affected by recent job cuts, and economists flagged the end of the mining investment boom as a factor likely to push unemployment higher in 2013.
The National Australia Bank (NAB) forecasted the unemployment rate would rise to about 5.75% later in the year and cut its 2013 interest rate forecasts from 3% to 2.25% by the September quarter. ANZ also expected the unemployment rate to rise to about 5.75% by mid to late 2013.
The article suggests investors should note that while the unemployment rise signals a softer economy, it may not immediately trigger an RBA rate cut. Watch key upcoming data (capital expenditure intentions, retail sales and labour force figures) and company reports for signs of more persistent weakness. Job cuts in building products, steel and retail/mobile stores show some sectoral vulnerability, which could influence stock performance in those industries.
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