There was nothing in this week’s flow of economic data to cause a change of thinking at the Reserve Bank about the need for more rate cuts.
The economy remains right where it thinks it should be, slowing as employment falls, but cushioned by huge rate rises and government spending, and the fall in petrol prices.
And the International Monetary Fund confirmed that Australia is where it sees it (with help from the Government and the RBA); growth falling by 0.5% this year, but rising by 1.3% in 2010 which would make us the best performing advanced economy for the next 18 months.
The IMF also released an update to its Global Financial Stability Report and published a note on global economic prospects that had previously been presented to the meeting of G-20 Deputies in Basel on June 27.
This G-20 note confirmed that Australia is expected to have higher growth than any major advanced economy over the next 18 months.
The IMF also pointed out that the Federal Government’s economic stimulus measures have helped deliver stronger growth, lower debt and lower deficits than any major advanced economy.
With housing finance surging, retail sales still solid, the economy is expected to continue on its present track for the rest of the year.
To get a slowdown of 0.5% this calendar year, the economy will have to shrink slightly in the June and September quarters because the surge of home building will start making a positive impact in the December quarter.
This week’s post-board meeting statement from the RBA seemed to anticipate the June result for unemployment: much of the market did, it seems
Unemployment rose as expected in June, capping a week in which it was again clear the Australian economy is not doing it as tough as it seemed at the start of the year.
The jobless rate rose to 5.8% in June, from 5.7% in May, with 21,400 jobs lost overall. That was a six year high and is now 2% above the low 3.9% rate in early 2008.
The market had been forecasting the loss of 20,000 jobs and the unemployment rate to rise to 5.9%.
The Australian Bureau of Statistics reported that unemployment fell 21,400 to 10.762 million with full-time employment dropping 21,900 to 7.611 million people and part-time employment rising by 400 to 3.150 million.
The participation rate fell to 65.3, down 0.2% as more people stopped looking for work.
The question now of future months is whether the 400 rise in part time jobs, compared with more than 24,000 part time jobs created in May, marks the slowdown in job creation and the start of more outright losses from now on.
The only odd thing from the ABS figures was the drop in the participation rate, which when put against the sharp rise in consumer confidence in June and July (a record 23.2%), raises a bit of a niggle of concern.
But that will only be answered in coming months.
The AMP’s Dr Shane Oliver said in a comment that the June labour force data highlighted yet again the relatively mild nature of the economic slump in Australia.
The Australian labour market is in far better shape than that in the US where unemployment is now 9.5%.
"However, the 50% slump in job ads over the last year and the slump in business hiring plans indicated in various business surveys suggest that more job losses lie ahead.
"Ultimately we see the unemployment rate peaking at 8% during the second half of next year.
"With the fiscal stimulus to households starting to fade the RBA will likely want to provide an antidote to the confidence draining impact of rising unemployment and the best way to do this will be to cut interest rates a bit further over the next six months."
Macquarie Bank’s Rory Robertson said yesterday in a commentary:
"Full-time jobs now have dropped by 160k (or 2.1%) from mid-2008 peak, while unemployment is up by 1.9 percentage points from its cycle low of 3.9% in February 2008.
"The good news remains that the weakness in our jobs market is tracking towards damage somewhat less severe than in the savage downturns we endured over the early 1980s and early 1990s."
