HSBC’s Paul Bloxham has called the end of the rate cutting cycle. He’s filled his call with maybes, wheretos and whyfors but it’s a call nonetheless. And good on him for making it. There’s nothing worse than economist’s hedging every second word:
The Australian labour market data were better than the market expected, further supporting our view that this week’s RBA cut may be the last for this easing phase. Employment rose by a solid +13,900 jobs in November (market had flat) and the unemployment rate fell back down to 5.2% (market had 5.5%). Aggregate hours worked rose in the month and may have passed their cyclical trough. We continue to expect the unemployment rate to stay in the low fives and to see further signs of growth rebalancing over coming months, given that mortgage rates are now well below their average level.
The Australian labour market has been surprisingly resilient over recent times and today’s report was more proof of this. Employment rose by a solid +14k jobs in November and the unemployment rate fell back to 5.2%, after having spent the previous two months at 5.4%. At its current level, the unemployment rate suggests the economy is not too far from full employment.
The fall in the unemployment in the month also provides further support for our view that the unemployment rate is likely to stay in the low fives over the coming year, barring an unforeseen negative international shock.
As we noted earlier in the week, we think Tuesday’s RBA cut could be the last in this easing phase. The global cycle seems to have stabilised, with China bottoming out. We expect Chinese growth to pick up next year from 7.8% to 8.6%, which should provide support for commodity prices. Locally, we are seeing early signs that below-average interest rates are starting to support housing construction, house prices and consumer sentiment. Looking forward we expect to see further rebalancing of Australia’s growth.
Our one big concern was further deterioration of the labour market. Today’s report helps to neutralise that concern, at least for the moment.
I’ll happily go on the record and say that I think Bloxo will be be wrong. Rates will fall further before this cycle is done or I will still run naked up a local mountain.
121206 Australian Unemployment Rate Falls – RBA May Now Be on Hold
