The Reserve Bank got its timing right for its switch on monetary policy, starting with the October rate rise, backed up by November’s Melbourne Cup day increase.
The October labour force figures from the Australian Bureau of Statistics yesterday show an economy gathering pace and regaining its job creation momentum.
While market forecasts for a rise in the unemployment rate back to 5.8% were spot on, their estimates for 10,000 jobs to be lost in October, were again wide of the mark. Over 24,000 were created.
The figures are also considerably at variance with the downturn in online and newspaper job ads last month.
Jobs growth happened in the resource rich states of Queensland and Western Australia.
NSW was again the laggard with a large rise back over 6% in the month. But the participation rate rose in NSW as more people were confident enough to look for work.
The reality is that the Australian economy has created over 65,000 jobs in the last two months in a surge of employment not seen for over a year, but not enough to absorb both the growth in the work force and the ranks of unemployed.
The federal government reckons the unemployment rate will peak at 6.75% early next year, but if this rate of job creation continues until December, then you’d have to wonder if the rate won’t end up close to where it is now, perhaps at a peak of 6%.
So pencil in a December 1 rate rise from the RBA, with the market analysts and economists now to debate whether a rise of 0.25% or 0.50% will happen.
Seeing many of them were out of the ballpark on the jobs numbers, perhaps their forecasts for a rate rise might be equally wide of the mark.
The ABS said that overall employment rose 24,500 to 10.831 million with full-time employment up 2,900 to 7.590 million and part-time employment up 21,500 to 3.240 million.
In September over 40,000 new jobs were created, weighted heavily towards new full time gigs.
The rise in part time employment is more typical of an economy recovering momentum and employers hesitantly adding to their employment numbers.
Unemployment rose 11,100 to 670,100, the highest since early 2002.
The number of people looking for full-time work rose 3,500 to 501,100 and the number looking for part-time work was up 7,600 to 169,000.
The participation rate remained steady at 65.2% and aggregate monthly hours worked fell 1.9 million hours to 1,521.1 million hours, according to the ABS.
That’s another sign that the job creation momentum is nowhere near full strength, but it’s approaching take-off.
Over the year from October 2008, 17,000 extra jobs were created, but there were an extra 154,000 people unemployed, plus hundreds of thousands of others working shorter hours.
No other major developed economy can claim to have added jobs in the toughest year their economies have seen in over 50 years.
On a state by state basis, NSW was the worst performer with the jobless rate jumping sharply to 6.1% from 5.5%, Victoria was unchanged at 5.7%, Queensland saw a fall to 6.0% from 6.3%, WA was down sharply from 5.7% in September to 5.0% last month, South Australia was also down to 5.3% from 5.7%, Tasmania, the Northern territory and the ACT were all either down, or steady.
In a note the AMP Global Investors Chief Economist, Dr Shane Oliver said the labour force data for October provided more evidence that unemployment has either seen or is very close to its peak.
"Employment rose by another 24500 in October and while this was mainly driven by part time employment, the surprise was that full time employment actually grew modestly after a very strong rise in September.
"While the unemployment rate rose back to 5.8% this leaves it in the same range it has been in since March.
"The reason unemployment rose despite the 24,500 rise in employment was that the labour force grew by an even stronger 33,600 persons in October which may reflect the impact of strong immigration levels – but it may also be a result of statistical noise as it is a very large increase for one month.
"Looking forward our assessment is that it is looking increasingly likely that we may have seen the peak in unemployment or at least come very close to it.
"Various business surveys including the National Australia Bank’s survey suggest that solid employment growth is likely going into next year."
See the chart below (or attached). By the second half of next year it’s likely that employment growth will be well above labour force growth and this should start to push the unemployment rate back down.
"The strong employment report for October coming on the back of strong readings for both business and consumer confidence, despite the onset of an interest rate tightening cycle, makes it likely that the RBA will move once again to raise interest rates by another 0.25% at its December 1 meeting.
"The strong run of economic data and firming expectations for a December rate hike are also very positive for the $A which looks like its embarking on another leg higher on its way to parity against the $US," Dr Oliver said.
