Employment strikes back the priorities!

[McKlaut]

From the Australian:

 

AN unexpected fall in Australia's unemployment rate to 5.7 per cent last month has bolstered views that the Reserve Bank will increase interest rates when it next meets in February.

 

The decline in the number of jobless, down from 5.8 per cent in October, is also likely to fuel calls for the federal government to wind back its spending plans.

 

Financial markets had expected an unemployment rate of 5.9 per cent.

 

Full-time employment soared by a striking 30,800 jobs.

 

The Australian dollar rallied on the robust news, rising up to US91.70 cents, from US91.10c before the report was released. By mid-afternoon, the Australian dollar was trading around US91.53c, up from yesterday’s domestic close of US90.67c.

 

CommSec chief economist Craig James said the jobless rate might peak below 6 per cent and the data showed Australia has the strongest economy among rich nations.

 

“The economy may not yet be going gangbusters, but Australia clearly has the strongest economy in the developed world,” Mr James said.

 

“Over the last three months, just over 95,000 jobs have been created.

 

“Job-seekers have received an early Christmas present. It now appears that the unemployment rate has peaked below 6 per cent as we predicted three months ago and will drift sideways to slightly lower over 2010.”

 

Westpac economists agreed that the unemployment rate might peak below 6 per cent.

 

But the federal government still expected the jobless rate to peak at 6.75 per cent by mid 2010, Employment Minister Julia Gillard said.

 

Treasurer Wayne Swan said the drop in the unemployment rate was due to the federal stimulus package but he warned that the economy still faced challenges.

 

“It's a very good outcome, but we still have challenges ahead,” Mr Swan said.

 

The Australian labour market has remained relatively resilient in the face of the sharp downturn in global economic growth. The jobless rate in Australia is well below levels in Europe and the US, where the unemployment rate is 10 per cent.

 

Many employers in Australia chose to reduce workers’ hours rather than embark on large-scale job cuts during the global crisis and, with the economy picking up again on Asian demand for the nation’s rich resources, businesses will be look to retain staff.

 

With business confidence buoyant and the economic outlook brighter, the Reserve Bank has raised official interest rates three times in as many months as it gradually removes the “emergency” level of rates put in place during the global financial crisis.

 

The official cash rate stands at 3.75 per cent.

 

IG Markets analyst Cameron Peacock said: “While on face value the unemployment rate falling to 5.7 per cent is a good thing, it undoubtedly gives the RBA more justification to continue hiking rates from early next year.”

 

Other economist agreed.

 

"(Employment) data results like this will help ensure that the RBA comes back from the holiday break in a mood to increase official interest rates further," Citi economist Joshua Williamson said.

 

Still, Mr James said the RBA would remain cautious about the economic recovery.

 

“While the Reserve Bank will continue to lift rates over 2010, it will keep a weather eye not just on the positive indicators but also the firm Aussie dollar, which is making life difficult for exporters and tourism operators,” he said.

 

“The Reserve Bank doesn't want to snuff out the recovery, rather, sustain it.”

 

Financial markets price more than a 50 per cent chance that the RBA will increase rates by 25 basis points to 4 per cent at its February board meeting.