Rate fears mount as jobs boom
Feb 10 11:54 (FIN Review)
Australia's supercharged labour market added new jobs at a rate nearly 10 times as fast as the market expected in January, narrowing the odds of the Reserve Bank raising interest rates more than once in the coming months.
The unemployment rate remained a near three-decade low in January, but would have fallen even further had it not been for a large spike in the proportion of the eligible workforce looking for jobs.
The official labour force survey, released by the Australian Bureau of Statistics on Thursday, scared the life out of an already jittery bond market and drove the Australian dollar up almost half a cent to US77.5¢.
The numbers reinforced market expectations of a near-time rise in official interest rates after the RBA explicitly warned on Monday that upward pressure on prices and wages was likely to force it to tighten credit soon.
"This report is strong across the board and will only reaffirm the RBA's tightening bias," said RBC Capital Markets economist Michael Every..
The number of people in work rose by a seasonally adjusted 44,500 last month, totally eclipsing median market expectations of a rise of 5,000 and more than twice as strong as even the most optimistic individual forecast.
The unemployment rate was unchanged at 5.1 per cent, its lowest reading since 1976. But it might have fallen further last month, had it not been for a big increase in the workforce participation rate to 64.1 per cent from 63.8 per cent.
The composition of the increase in employment was fairly evenly split between full-time jobs, which rose by 24,400 and part-time, which rose by 20,100.
The Reserve Bank, in its quarterly policy statement early this week, paid particular note of the strength in the labour market and higher employment costs in warning that the risk of an interest rate rise had increased.
The RBA noted that the robust labour market was at odds with the relatively weak picture of the economy that emerged in the September quarter national accounts.
It is also out of keeping with unusual weakness in the official monthly measure of retail trade, which the central bank has said may be due to sampling variation and in any case captures only 40 per cent of consumer spending.
Alongside the official measures of employment, the central bank also noted private surveys are pointing to strong demand for labour and emerging skill shortages in a wide range of industries from construction to accounting.
However, official measures suggest economy-wide wage costs are rising only moderately. And some economists say without hard evidence of a wages breakout, the bank may find it hard to justify raising interest rates anytime soon.
On that score, the next major focus for the market will be the RBA's preferred measure of wages growth - the Australian Bureau of Statistics' quarterly survey of wage costs, to be released on February 23.
"There would arguably have to be real weakness in the wage cost index to temper the RBA's hawkish bias," said Mr Every.
"In short, further rate hikes - and we use the plural here deliberately - in this cycle look even more likely than before, and the timing leans towards March rather than May for the kick-off."
The results spooked the futures market. Bill futures, an indication of where markets sees official rates heading, were 11 basis points off their highs and fully priced for two rate rises by the second half of the year and leaning towards a third.
The September contract was down 8 basis points at a price of 94.15, which implies a yield of 5.85 per cent compared with the RBA cash rate of 5.25 per cent.
Feb 10 11:54 (FIN Review)
Australia's supercharged labour market added new jobs at a rate nearly 10 times as fast as the market expected in January, narrowing the odds of the Reserve Bank raising interest rates more than once in the coming months.
The unemployment rate remained a near three-decade low in January, but would have fallen even further had it not been for a large spike in the proportion of the eligible workforce looking for jobs.
The official labour force survey, released by the Australian Bureau of Statistics on Thursday, scared the life out of an already jittery bond market and drove the Australian dollar up almost half a cent to US77.5¢.
The numbers reinforced market expectations of a near-time rise in official interest rates after the RBA explicitly warned on Monday that upward pressure on prices and wages was likely to force it to tighten credit soon.
"This report is strong across the board and will only reaffirm the RBA's tightening bias," said RBC Capital Markets economist Michael Every..
The number of people in work rose by a seasonally adjusted 44,500 last month, totally eclipsing median market expectations of a rise of 5,000 and more than twice as strong as even the most optimistic individual forecast.
The unemployment rate was unchanged at 5.1 per cent, its lowest reading since 1976. But it might have fallen further last month, had it not been for a big increase in the workforce participation rate to 64.1 per cent from 63.8 per cent.
The composition of the increase in employment was fairly evenly split between full-time jobs, which rose by 24,400 and part-time, which rose by 20,100.
The Reserve Bank, in its quarterly policy statement early this week, paid particular note of the strength in the labour market and higher employment costs in warning that the risk of an interest rate rise had increased.
The RBA noted that the robust labour market was at odds with the relatively weak picture of the economy that emerged in the September quarter national accounts.
It is also out of keeping with unusual weakness in the official monthly measure of retail trade, which the central bank has said may be due to sampling variation and in any case captures only 40 per cent of consumer spending.
Alongside the official measures of employment, the central bank also noted private surveys are pointing to strong demand for labour and emerging skill shortages in a wide range of industries from construction to accounting.
However, official measures suggest economy-wide wage costs are rising only moderately. And some economists say without hard evidence of a wages breakout, the bank may find it hard to justify raising interest rates anytime soon.
On that score, the next major focus for the market will be the RBA's preferred measure of wages growth - the Australian Bureau of Statistics' quarterly survey of wage costs, to be released on February 23.
"There would arguably have to be real weakness in the wage cost index to temper the RBA's hawkish bias," said Mr Every.
"In short, further rate hikes - and we use the plural here deliberately - in this cycle look even more likely than before, and the timing leans towards March rather than May for the kick-off."
The results spooked the futures market. Bill futures, an indication of where markets sees official rates heading, were 11 basis points off their highs and fully priced for two rate rises by the second half of the year and leaning towards a third.
The September contract was down 8 basis points at a price of 94.15, which implies a yield of 5.85 per cent compared with the RBA cash rate of 5.25 per cent.
