Spike in unemployment could lead to a March rate cut

by Julia Corderoy13 Feb 2015
A spike in the unemployment rate in January could see the Reserve Bank make another cash rate cut as soon as next month.

The latest labour force statistics released by the Australian Bureau of Statistics (ABS) saw the unemployment rate rise from 6.1% in December to a 12-year high of 6.4% in January.  This means the number of jobs fell by 12,200 in January after rising by 42,400 in December. Full-time jobs fell by 28,100 over the month while part-time jobs rose by 15,900.

CommSec’s chief economist, Craig James says the 0.3% spike in unemployment is a result of dampened business confidence.  

“When assessing the latest jobs data it is always important to look at all the latest estimates and trends, rather than focussing on one or two key indicators. And the trends suggest that Australian businesses have become cautious about taking staff on. In the latest month, part-time workers rose, full-time jobs fell and hours worked lifted to 7-month highs,” he said. 

“So businesses are working existing staff more intensively and taking on part-timers to fill gaps. But with the focus on efficiency and productivity, businesses are reluctant to take on full-time staff.”

On this basis, James says there seems to be no barrier to the Reserve Bank cutting interest rates again at the March Board meeting. 

“Simply, Australia is growing at a far slower rate than its potential. So the Reserve Bank can cut rates without fear of generating inflationary pressures.”

However, James also added that there is little reason for the Reserve Bank to go further in cutting rates over the year and consumers should not be too worried. 

“The problem is one of confidence than lack of incentives or weak economic ‘fundamentals’. With dwelling starts at record highs, and Aussie dollar weakening, it is clear that the economy has scope to pick up pace.”

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