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 that by early March, the Reserve Bank would have further data on retail sales and the labour force, which would give it a clearer view on the trend in employment.
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 also said on Wednesday it was set 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 unemployment rate rose to 5.4% in December from a revised 5.3% in November, as total employed people fell by about 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. For everyday investors, these figures signal a softening jobs market but, according to economists cited in the article, are not by themselves enough to trigger an immediate Reserve Bank of Australia (RBA) rate cut.
No. Economists in the article said the higher unemployment rate is evidence of a weakening economy but not sufficiently weak to justify an immediate rate cut. The RBA has been expecting some softening in the jobs market and is likely to wait for more confirming data before cutting rates.
Markets had already priced in at least one more rate cut this year after the RBA eased the cash rate to 3% in December. Analysts in the article suggested a cut is more likely in March rather than the next month, pending further economic evidence.
Economists quoted in the article said the RBA would want further evidence of economic weakness, particularly capital expenditure intentions (released in late February), as well as additional readings on retail sales and the labour force by early March to form a clearer view on employment trends.
Both National Australia Bank and ANZ expect the unemployment rate to rise to about 5.75% later in 2013. NAB also cut its interest-rate forecasts, projecting rates could fall to about 2.25% by the September quarter. These forecasts suggest that if unemployment continues to rise, economists expect downward pressure on interest rates over the year.
The article names several companies making cuts: Boral planned to cut about 700 office jobs, BlueScope Steel outlined plans to axe around 170 workers at its Hastings plant in Victoria, and Vodafone said it would close or rebrand the Crazy John's stores by February 20, putting roughly 300 jobs at risk. More than 1,000 jobs were reported cut in the week covered.
New South Wales and Victoria added jobs, with increases of about 8,000 and 14,000 respectively, while Queensland recorded a significant loss of roughly 22,900 jobs in the latest period reported by the Bureau of Statistics.
After the RBA eased the cash rate to 3% in December, markets priced in at least one more cut for the year. However, economists in the article emphasised that the RBA will likely wait for additional evidence of economic weakness—such as capex intentions, retail sales and further labour-force data—before acting, so investors should watch upcoming data releases that could influence the timing of any further cuts.
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