Two more rate rises likely this year as jobless rate falls
By Colin Brinsden, Economics CorrespondentThu Oct 8 22:18:05 EST 2009
Thu Oct 8 11:18:05 UTC 2009
CANBERRA, Oct 8 AAP - An unexpected fall in the jobless rate to a four month low of 5.7 per cent has hardened expectations for another two interest rate rises before Christmas.
Economists say such strength in the labour market has also raised question marks as to whether the federal government should continue with its stimulus measures.
A surprising jobs report for September released on Thursday justified the Reserve Bank of Australia's (RBA) decision to raise the cash rate this week, while stunning both financial markets and economists.
Not only did the unemployment fall to 5.7 per cent after three months of holding at 5.8 per cent, employment grew by a hefty, seasonally adjusted 40,600, which was largely made up of 35,400 full-time workers.
This was in sharp contrast to the 10,000 fall in jobs and six per cent jobless rate economists were expecting.
"To suggest today's outcome was an impressive result is an understatement," RBC Capital Markets senior economist Su-Lin Ong said.
The Australian dollar spiked above 90 US cents for the first time in 14 months on the report as money markets all but priced in further interest rate increases for both November and December.
All four major banks - ANZ, Commonwealth Bank, National Australia Bank and Westpac - raised their standard variable mortgage rates by 25 basis points after Tuesday's increase in the cash rate to 3.25 per cent from 3.0 per cent.
Employment Participation Minister Mark Arbib adopted a more cautious response to the jobs data, warning against reading too much into one month's figures and emphasising the economy was still very fragile.
"The stimulus is working but again there's still a long way to go in the global recession," he told reporters in Melbourne.
But the opposition argued that the government couldn't take credit for the improved jobs figures.
"What these figures show is the underlying strength of the economy which the government inherited and the underlying strength of the labour market which the government inherited," employment participation spokesman Andrew Southcott told ABC Radio.
The data suggests the jobless rate will peak substantially below the May budget forecast of 8.5 per cent by June 2011, if it hasn't topped-out already.
The government has repeatedly said it won't be revising its economic forecasts until the mid-year budget review due later in the year as usual.
But Nomura Australia chief economist Stephen Roberts believes it has gone beyond waiting until it is convenient to release the revisions.
He said the government can't continue with the old story about "big risks" and the need to spend to support the economy.
"That just won't cut the ice anymore," he said.
"It's all well and good to have a big fiscal stimulus when your forecasts are telling you that you have a big hole in the economy ... but once you start to receive very strong evidence that the hole doesn't exist ... they have to be very quick off the mark to cancel some of it."
Treasury secretary Ken Henry and his department face more than three hours of grilling in front of a Senate inquiry into the government's stimulus measures on Friday.
But even before hearing evidence from Dr Henry - the main architect of the stimulus measures - the opposition rushed out a four-point debt reduction plan in attempt to take the focus off renewed Liberal leadership speculation.
The "strategy", which was no more than a rehash of previous announcements, was labelled by Financial Services Minister Chris Bowen as just a "scare campaign" and a "distraction".
