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Latest job figures may see RBA leave rates on hold

Australian jobs data for May was much better than expected.

The latest job data supports the view that the economy is nowhere near as weak as the doomsayers would have it. However, the May figures likely exaggerate the strength in the jobs market. Monthly jobs growth resembles a random zigzag that looks more like statistical noise rather than a reliable indicator of actual jobs growth. For example, the changes in employment for the last three months have been: +47,000, -14,000 and now +42,000 which is not credible.

Employment data highlights

The acceleration in annual jobs growth to 2% is contrary to the slowing trend in economic growth seen over the last year. As a result, we think it’s premature to conclude that the unemployment rate has peaked.

While the unemployment rate fell last month, the next chart below shows how much stronger the US jobs market now is relative to that in Australia. It’s a similar picture if those who want to work longer hours are included to give what is called the labour underutilisation rate. This fell to 14.5% from 14.9% between February and May but a similar measure in the US has it at 10.8%.

Will the RBA leave the cash rate on hold?

While the May jobs data supports the case for the Reserve Bank of Australia (RBA) to leave rates on hold at its July meeting, it’s not convincing enough to remove the RBA’s clear easing bias (which was expressed recently by RBA Governor Stevens). With the weak outlook for non-mining investment, a fall back in consumer confidence and a still too high Australian dollar, another rate cut at the August RBA meeting remains a 50:50 proposition.

About the author
Shane Oliver, Head of Investment Strategy and Chief Economist, AMP Capital
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