Surprise Jobs Rise Again Defies Lagging Growth
The Age
Friday December 8, 2006
AN UNEXPECTED increase in jobs last month will leave the Reserve Bank with the same conundrums it has faced for the past year. How can employment keep expanding while economic growth is slowing? And will the 30-year-low unemployment rate continue to fuel inflation and force the central bank to raise rates again?
The November labour force figures show total employment rose 36,200 to 10.289 million, recovering the 32,500 drop of the previous month. The number of full-time jobs soared by 57,400 to 7.362 million, but part-time jobs fell by 21,200. The participation rate jumped to 64.8 per cent, compared with a revised 64.6 per cent in October.The figures left the unemployment rate at a three-decade low of 4.6 per cent (seasonally adjusted). In trend terms, the unemployment rate in Victoria fell 0.1 of a percentage point to 4.6 per cent.Westpac senior economist Anthony Thompson said the unemployment rate would leave the central bank concerned about inflation and prompt it to raise interest rates again next year."The Reserve Bank (will be) concerned about capacity constraints and continued upside risks for wage inflation and, therefore, the inflation outlook, even though official wage measures have been well-behaved to date," he said.ABN Amro chief economist Kieran Davies said interpreting the jobs figures had become trickier because the Australian Bureau of Statistics had underestimated the population in the first part of the year. "If that's right, that means that employment was understated earlier on and has been overstated at the moment," he said.The higher employment numbers sit at odds with national accounts data released this week, showing gross domestic product expanded by just 0.3 per cent in the September quarter and 2.2 per cent over the year.Mr Davies believes the Reserve Bank will wait to see the December-quarter inflation figures, due out in January, before acting again, but he is still tipping rates to stay on hold. He said the employment figures were a lagging indicator and the central bank's three interest rate rises this year would continue to dampen demand. The US economic slowdown would be another reason for the bank to keep rates on hold.The financial markets also expect no early change to interest rates. Even so, investors raised their expectations of another rate rise by March after the release of the jobs data, from about a 6 per cent chance to 18 per cent. That gain was the largest one-day move in three months.Federal Treasurer Peter Costello said the problem now was not a lack of jobs but too few people to fill those jobs, which in turn is constraining growth.In other figures released yesterday, the bureau also revealed that net overseas migration into Victoria has risen to the highest level in decades, with a net 38,551 migrants settling in the state in the year to June.Net migration jumped nationally for the second year in a row to 134,560, the highest level since the Sydney Olympics. With births up 3.3 per cent after the Federal Government's baby bonus, Australia's population grew by 265,700, or 1.3 per cent, to 20,605,000 at the end of June.Victoria grew even faster, its population up 68,500, or 1.4 per cent, to 5,092,000. It has overtaken NSW to become Australia's biggest migrant destination for the first time since the 1960s.KEY POINTS ? Unemployment is at its lowest in three decades.? Jobs data is at odds with GDP, which rose by just 0.3 per cent.? The Reserve Bank may raise rates again by next March.
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