Here is this month’s regular Q&A column contributed by Greg McKenna, the Markets & Economics Correspondent for Business Insider Australia.
The Australian economy has been looking like it hit a flat spot recently. Headline inflation of just 1.5% is well below the bottom of the RBA’s 2-3% inflation target band and suggest a lack of pricing power in the economy for businesses which need to pass on the impact of the Australian dollar’s more than 20% fall in the past 12-15 months. That lack of pricing power lead many, myself included, to start to wonder whether the state of the national economy was weaker than had been previously thought.
Indeed many forecasters, including investment banks Goldman Sachs, UBS, major Bank ANZ and big Investors like AMP to call for an RBA rate cut. The reserve Bank itself was concerned enough about the lack of inflation in the economy to leave the door ajar for a rate cut (more on that later).
But all that changed with the release of Australia’s October jobs report. The report showed that employment grew an incredible 58,600 (seasonally adjusted) in October with 40,000 of those jobs coming in the full time category. That’s taken the total number of employed people in Australia to a new all-time high of 11,838,200.
At the same time the surge in employment saw the unemployment rate drop 0.3% to 5.9%. That means that the uptrend in employment that started just as the GFC kicked off in 2008 has now tentatively broken. I say tentatively because these data are volatile and prone to revision. So there is every chance that next month we find out that there wasn’t actually 58,600 jobs created this month nor that the unemployment rate was actually 5.9%.
But the key here is that the Australian labour market continues to be much stronger than many believe. Now as I alluded to the data is prone to revision and hardly anyone believes the economy actually created 58,600 jobs in October. But even with that said Goldman Sachs, UBS, and AMP all changed their call for an RBA rate cut after the data while the ANZ is walking away from the call.
Tim Toohey at Goldman said “We now believe that the most likely scenario is that the RBA keeps rates unchanged at 2.00% through 2015 and into 2017.” That period without a rate move is probably unlikely. But you get the picture.
The good news for the Hunters is as national employment has improved so has our region with the rate of unemployment back down near 7%. Just like the national outlook, more people working means more people spending. That means better economic growth for the region. That’s good news.
Greg McKenna is an economist, trader and adviser. He runs his own consultancy and writes for Business Insider Australia. You can find him on Twitter @gregorymckenna or at www.gregmckenna.com.au