Positive signs for the RBA from the jobs report

Economist Lee Sue Ann at UOB Group assessed the recent employment figures in Australia for the month of September.

Key Quotes

“Australia’s unemployment rate fell to 5.2% in September, surprising the market who had expected it to hold at 5.3%. Employment rose by 14,700, down from a revised 37,900 in August and below expectations for a 15,000 increase”.

“Earlier this month, the Reserve Bank of Australia (RBA) slashed its official cash rate (OCR) by 25bps to 0.75%. This was the third cut this year as the RBA tries to push the unemployment rate lower, and inflation and wage growth higher. RBA Governor Phillip Lowe explained that although the “outlook for the global economy remains reasonable, the risks are tilted to the downside”, with the US–China trade dispute affecting global trade and businesses scaling back their investment. Lowe added that it was “reasonable to expect that an extended period of low interest rates will be required”, and that the RBA is “prepared to ease monetary policy further”.

“Earlier today, RBA Deputy Governor Guy Debelle, in a speech, cautioned that a downturn in home building had been a larger drag on the economy and jobs than first expected and was set to get worse before it got better”.

“Today’s employment report is definitely a positive sign for the RBA, especially when unemployment has been rising from 4.9% since February. However, the labor force participation rate unexpectedly edged lower to 66.1% from 66.2% previously, which could reflect discouraged workers exiting the force altogether”.

“The RBA will be receiving more data on inflation (3Q19) on 30 October. For now, though, there are good reasons for the RBA to remain on a “wait-and-see” approach, especially since there are only three quarter-point cash rate cuts left before Australia joins the “exclusive” group of central banks in the world with zero and negative interest rates. As such, barring any major negative shocks, we look for a steady OCR of 0.75% for the rest of this year”.

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