Jobless data may not sway RBA

by Julia Corderoy11 Aug 2014
While the market has priced in an increased chance of a rate cut, economists say a huge jump in unemployment is unlikely to sway the RBA.

Job figures released by the Australian Bureau of Statistics revealed Australia’s unemployment rate hit 6.4% in July, a figure that means more Australians are out of work now than during the global financial crisis. 

The news prompted investors to increase their bets on an RBA rate cut, pricing in a 32% chance of a cut before Christmas. But Australian Broker spoke with BIS Shrapnel associate director of economics Richard Robinson, who said the RBA will leave the cash rate on hold at 2.5% for the moment. 

“Labour force data is often volatile. As the RBA would also know this, it is likely to wait for more labour force releases, and check the trend labour force data before making a decision. 

“Over the next few months, the RBA will leave rates on hold. It is only likely to cut rates if the unemployment rate jumps and holds above 6.5% and if house prices recede – which will give them some scope to cut rates.” Robinson said.

ING Direct treasurer Michael Witts, told Australian Broker the unemployment figures may not be as dire as they appear.

“We need to look at both the trend and seasonally adjusted data, especially when there is a discrepancy between the two. The seasonally adjusted data shows an increase of 0.3 percentage points to 6.4%, while the trend data shows an increase of 0.1 percentage points to 6.1%. The labour force statistics have also been pretty consistent recently, up until July. 

“The real issue here is there hasn’t been a big decrease in employment – only 300 jobs were lost, and the participation rate has only increased by 0.1 percentage points. The ABS has also acknowledged there was a change to the data consistency in July, so the RBA will not take action after one month of doubtful data,” Witts said.

Due to this volatility of the labour force figures, care should be taken when interpreting the data, according to both Robinson and Witts. The July data set was predisposed to definitional changes, changes to questions, and the rotation in the survey.

The ABS rotate one eighth of the sample group every month, and rotate the whole sample group every eight months. In the July data release, the one eighth of the sample group which was rotated had a much higher unemployment rate than the overall sample unemployment rate. Since the ABS cannot determine which part of the sample is representative of the Australian economy, the new rotation had to be included. This could have been a factor in the rise in the unemployment rate from June to July. 

The ABS has also said that definitional changes in the July data release were mainly to the survey questions and underlying categorisation of survey questions – but this was unlikely to impact on the unemployment rates.