There is no way Reserve Bank Governor Glenn Stevens and the rest of the central bank’s board would have expected to have this week’s rate rise vindicated so quickly and so emphatically.
But yesterday’s labour force and unemployment data for September from the Australian Bureau of Statistics has made the 0.25% rise in the cash rate, to 3.25%, look amazingly well-timed.
The economy is now in full recovery mode. It’s no longer a basket case.
The September report was the second month since April that the jobs report showed an unexpectedly strong outcome.
Every measure went the right way: more jobs, especially full time gigs, participation rate up, more hours worked and the headline rate down to 5.7% from 5.8% in August.
40,000 new full and part time jobs created in the month; 35,400 of those full time.
The underemployment rate remains high at around 14%.
But the jobless rate has been around 5.7% to 5.8% now since March-April of this year.
In fact the rate was 5.7% in March and the number of people out of work has risen, by just 9,000 between then and last month, while the labour force has grown by 58,000 people.
In the original (non-seasonally adjusted series) there were 10,885,200 people with jobs last month. The previous record high was exactly a year ago at 10,875,300.
If anything it has locked in another 0.25% at the November board meeting and possibly the December meeting, which says goodbye to 2009.
It is complete vindication for the RBA Governor and the board.
There had been a danger that if the market forecasts were right and unemployment shifted to 6% or higher this month and next, the central bank would have been criticised for lifting rates into a worsening labour market.
There is though the trade-off between the higher rates, higher currency and the impact of that on export income in coming months.
The news sent the Australian dollar off again, climbing a cent from just over 89 US cents to a touch over 90 cents, the highest level for well over 14 months. It’s jumped 3 US cents since last Friday.
The result, which made a mockery of market economists’ forecast of a rise in the unemployment rate to 6% and job losses of 5,000 to 10,000, now raises the distinct chance that the unemployment rate may be peaking below 6%, which is even lower than anyone would have dreamt of, even a week ago.
No wonder, even though there was a wide variation in the participation rate between states, the overall reading was solid.
It actually bears out the signals from the clutch of job ads surveys for newspapers and the internet (especially the ANZ survey) which have been positive now for the past two to three months.
The ABS said that "Employment increased by 40,600 to 10,805,600. Full-time employment increased by 35,400 to 7,589,800 and part-time employment increased by 5,200 to 3,215,800.
"Unemployment decreased by 3,800 to 658,600. The number of persons looking for full-time work increased by 9,500 to 497,400 and the number of persons looking for part-time work decreased by 13,300 to 161,200.
"Unemployment rate decreased 0.1 pt to 5.7%. The male unemployment rate decreased 0.1 pt to 5.8%, and the female unemployment rate remained at 5.6%.
"Participation rate increased 0.1 pt to 65.2%.
"Aggregate monthly hours worked increased 13.4 million hours to 1,522.4 million hours."
This report will bring more calls from those hindsight economists and commentators for the stimulus to be cut back because it was too big.
It is already being pulled back: the tax allowance for medium business has gone, the allowance for small business goes at the end of December and the first home buyer and builder grants have been reduced from the start of this month.
A year ago no one knew how the economy would travel as the financial system quaked after the Lehman Brothers failure.
Fear and trepidation stalked the economy: it was the $100 billion in Reserve Bank funding in the final quarter of 2008 that now looks like it helped steady the system, along with those guarantees for bank deposits and short term borrowing by the banks.
Because the world economy crashed from November onwards, with the US, Japanese, European, UK and even the Chinese economies in trouble (world trade plunged 50% in December), the federal government saw the need to add more fiscal stimulus to the first round that happened in December and which helped keep retailing positive at Christmas.
The second stimulus package followed with its staged spending and it has worked, allied to Australia’s close links to the recovering Chinese economy.
The RBA kept cutting rates, ending the emergency cuts in April at 3% for the cash rate.
The jobless rate now seems to have peaked about the same time.
Now it’s a question of handling the upturn and making sure it’s not wasted by falling back into our bad inflationary ways, which the central bank acknowledges are still there and not crushed by the shallow slowdown.
Rising interest rates and jobs numbers are good news, not bad.
What would you rather have: rising rates and jobs, or rates at 3% and rising numbers of people out of work, as the situation still is in the US, Japan, the UK and Europe?
All four big banks yesterday revealed a 0.25% rise in their standard variable mortgage rates.
That won’t hurt too many people.
The Commonwealth says 90% of its home loan customers have been maintaining repayments at old higher, rates, thereby building up equity. Westpac sa
