Australian employment kicked up by an unexpectedly higher in June, surprising markets and economists. But it’s not going to last.
With the likes of Southern Pacific Tyres and Insurance Australia already revealing plans to scrap 1200 jobs over the rest of the year, and hundreds of jobs to be cut at Qantas, employment is going to come under renewed pressure.
The Australian Bureau of Statistics reported that an extra 29,800 jobs were created last month, compared to the market forecast of just 10,000 and the near 20,000 drop in May (which now looks like 25,600 after revisions. It was originally around 19,700 in the first report last month).
In fact the net addition to the jobs market was less than 4,000 or so after taking account of the larger fall in May. That is not going to stampede the horses at the RBA.
Four extra thousand jobs over two months isn’t a big worry: it’s almost ‘statistical noise’. Seeing employment is a ‘lagging’ indicator, it was probably more a reflection of what was happening several months earlier.
But economists point out that 44,000 jobs were created in the June quarter, compared to an average 74,000 a quarter in the past two years: that’s clearly a slowing in job creation and is what the RBA will focus on.
The RBA referred to the May job losses in its statement after its board meeting on July 1. They won’t get a mention next month.
The ABS said full-time employment increased by 24,000 to 7,664,600 and part-time employment increased by 5,800 to 3,051,100 while unemployment fell 2,800 to 473,800 people. That saw the unemployment rate eased to 4.2% from, 4.3% in May.
The news won’t change the Reserve Bank’s current stance of not doing anything with interest rates, but it’s another oddity to go with the sharper than expected 0.7% rise in retail sales in May.
Both sets of figures contradict other surveys like the consumer and business confidence surveys out this week which showed multi-year lows, and three performance surveys for services, manufacturing and construction, which showed a contraction last month.
Insurance Australia announced Wednesday it would cut 600 jobs, or about 5% of its local workforce, to help lower annual costs by $130 million. Goodyear Tire & Rubber Co., the US tyre maker, said last month it will close its South Pacific Tyres factor in Melbourne factory and shed 600 workers. Qantas has warned that jobs will go as it downsizes in coming months, cutting routes and ending services permanent. At least six big jets won’t be needed, and that estimate could climb.
The news came as the stockmarket seemed to steady after a sharp opening loss after Wall’s Street’s nasty 2% fall across the board, with eh key Standard & Poor’s 500 index dropping into bear territory, joining the Dow, Nasdaq, our market and others.
The major indices finished down around 1.4% yesterday after being down 1.6% at one stage. It wasn’t a convincing end to the day’s trading.
The latest jobs figures were released as the latest assessment of the Australian economy was also made public by the International Monetary Fund.
In it, the Fund the made the usual warning about the need for the RBA to be ready to tackle inflation, but seeing as how the bank has moved to lift rates before most, if not all major central banks around the world, that seems to be a bit ho hum.
"Sound macroeconomic policies and structural reforms have delivered a prolonged expansion, but recently the economy’s productive capacity has become increasingly stretched," The IMF said at the start of its commentary, which seems a lot like it came from a recent Reserve Bank statement or three.
"The commodity driven boom has pushed up against capacity constraints, with unemployment falling to the lowest rate since the mid-1970s and capacity utilization rising to historic highs.
"As inflation accelerated over the past year, the RBA appropriately tightened monetary policy, and fiscal policy in the latest budget is providing needed support.
"The global financial turmoil that emerged in mid-2007 and the extraordinary jump in Australia’s commodity export prices in recent months present additional challenges.
"Underlying inflation is the highest it has been since the introduction of inflation targeting in the early 1990s, and monetary and fiscal policy will need to focus on reducing inflation," The IMF said in a comment that sort of states the obvious.
But the organisation did make one comment that many Australian investors continue to ignore.
""The global financial turmoil has illustrated the resilience of Australia’s financial system and highlighted the role of the sound macroeconomic policy framework, the flexible economy, and the importance of structural reform."
In other words the IMF reckons the Australian economy and financial system is strong enough, and sound enough to withstand the continuing pressures from the credit crunch. It’s a comment worth remembering, especially as we look at the damage being done in Britain and the US to their financial systems and economies.
On the outlook for the economy, the IMF again seems to be quoting from the RBA:
"We share the authorities’ view that activity is beginning to slow as required to reduce inflation.
"Growth in real domestic demand has begun to ease with the rise in debt-service costs, higher energy and food prices, and a decline in confidence.
"However, the jump in commodity prices and cuts in personal income taxes will provide support for economic activity.
"Our baseline forecast is that real GDP growth will decline below trend for the next two years, easing dom
