Weak data point to a softening economy
But economists said if unemployment data, to be released on Thursday, is weaker than expected, pressure would increase on the RBA.
Economic data released on Monday showed job ads dropped by 3.8 per cent in November, according to an ANZ survey, falling for the 10th straight month.
Housing loans fell by a surprise 0.5 per cent in the same month, a Bureau of Statistics report showed.
"We saw some softer conditions in Australia in the fourth quarter of last year. The key question is: do we see an improvement in the first quarter of this year?" said Paul Bloxham, the chief economist for HSBC in Australia and New Zealand.
The average credit-card balance fell by a record 2.3 per cent over the year to November, while inflation rose by 2.4 per cent over the past year, around the midpoint of the RBA's target band.
Economists said the data showed that a lack of consumer confidence, job uncertainty and a desire to pay down debt remained the predominant themes for Australians.
"The 'balance sheet repair' mentality that pervades Australian households remains quite strong, despite lower mortgage rates," said Michael Workman, the Commonwealth Bank's senior economist.
"The national household savings rate is still near 10 per cent, the highest since the early 1980s."
Households' desire to shun debt, even at financial crisis lows, could also mean that any further interest rate cuts were less likely to impact on borrowing levels, said Craig James, the chief economist at CommSec.
At the same time, the lack of a pick-up by non-mining sectors as mining investment shrinks this year could lead to a rise in the unemployment rate this year, some economists said.
"The most interesting numbers in the next couple of weeks is actually going to be on Thursday, which is the labour market," said Alan Oster, the chief economist at National Australia Bank.
"We think unemployment might be on its way up, so we'll see."
Economists estimate the unemployment rate will rise to 5.4 per cent from its current level of 5.2 per cent.
Justin Fabo, the head of Australian economics at ANZ, said he expected the unemployment rate to rise to about 5.75 per cent from the current level of 5.2 per cent by mid to end-2013.
On Friday, the NAB tipped the unemployment rate to rise to about 5.75 per cent by late this year. The bank also slashed its interest rate forecasts for 2013 to 2.25 per cent by the September quarter.
But analysts said signs that the global economy was picking up meant the RBA was more likely to keep rates steady in February as it waited for recent cuts to take effect.
Frequently Asked Questions about this Article…
Recent data showed job advertisements fell 3.8% in November (ANZ survey), the 10th straight monthly decline, and housing loan approvals surprisingly fell 0.5% in the same month (ABS). Economists say these readings point to a softening economy and weaker labour market conditions, although they do not on their own guarantee an immediate interest-rate response from the RBA.
Analysts in the article said the November data alone did not strengthen the case for an RBA cut in February. However, they noted that if upcoming unemployment figures were weaker than expected, pressure on the RBA to cut would increase. At the same time, signs of a global economic pick-up mean the RBA may wait to see how recent cuts feed through before moving again.
Economists cited in the article estimated unemployment could rise from about 5.2% to roughly 5.4%, with some—including ANZ and NAB forecasts—expecting it to reach about 5.75% by mid to late 2013. Rising unemployment matters for investors because it can weaken consumer demand, put pressure on company revenues outside mining, and influence RBA policy decisions that affect interest rates and markets.
The average credit-card balance fell a record 2.3% over the year to November, while the national household savings rate remained near 10%—the highest since the early 1980s. Economists say this 'balance sheet repair' mentality means many households are prioritising paying down debt over new borrowing, which can keep consumer spending subdued.
Economists in the article warned that even with lower mortgage rates, households’ strong desire to pay down debt may limit any pickup in borrowing. CommSec’s chief economist Craig James specifically noted that households shunning debt could mean further rate cuts have less impact on borrowing levels.
The article notes that as mining investment shrinks this year, a lack of a pick-up in non-mining sectors could lead to a rise in unemployment. That sectoral weakness is a risk to overall growth and to jobs outside the mining industry, which investors should monitor when assessing corporate earnings and employment-sensitive sectors.
Some major institutions adjusted forecasts in response to the softer data: NAB cut its interest-rate forecasts for 2013 to about 2.25% by the September quarter and indicated unemployment may rise to around 5.75% by late 2013. HSBC and ANZ economists flagged weaker fourth-quarter conditions and questioned whether improvement will appear in the first quarter.
Investors should watch upcoming labour-market and unemployment data (highlighted as the next key release), any further housing-loan or credit trends, and inflation readings. These indicators will influence RBA policy expectations and provide signals about consumer confidence and borrowing—important for assessing sectors sensitive to spending and rates.
Call 1300 880 160
Start a chat
Schedule a call
