Australian unemployment has hit a 12 year high. Sound bad - but how bad? What are the implications for the economy?
The unemployment rate rose to 6.4% and it’s also the first time Australia’s jobless rate has surpassed the US since 2007. For the record, the unemployment rate in the US is 6.1%.
Michael Blythe, chief economist at Commonwealth Bank of Australia told Bloomberg News that, “It’s been a long time since Australia has had that kind of number. Most other countries have unemployment figures trending down, but our number is edging higher. This is quite a significant divergence from our trend.”
According to another leading Australian economist, the unexpected result reflected a combination of strong growth in the labour force and a lift in the participation rate, but no employment growth.
“The numbers suggest that the loss of momentum in the second quarter continued to be a drag on the labour market into July,” said Paul Bloxham, chief economist, Australia & New Zealand, HSBC Bank. “The slowdown in growth in Q2 followed strong GDP in Q1, but also reflects the impact of falling commodity prices, a stubbornly high AUD as well as the negative reaction to the May Federal budget.”While a weaker labour market clearly increases the potential for a cut in interest rates, Bloxham remains unconvinced that the central bank will pursue this course of action. “We still see this as unlikely given that monetary policy is already very accommodative and the housing market is already booming,” he said. “However, a weaker labour market is likely to take further pressure off wages growth, which could put downward pressure on inflation in the medium term. While we remain of the view that the RBA are unlikely to cut rates further, the clear risk is that they may be on hold for longer than previously expected.