Unemployment down to 4.3%
Interest rates look set to rise next month as tight labour market conditions continue to fan inflationary pressures in the economy.
The Australian Bureau of Statistics (ABS) today released figures showing the unemployment rate fell to 4.3% in December, from 4.5% the previous month.
A total of 20,100 people joined the workforce in December, including 6,300 full-time and 13,800 part-timers, after an impressive rise in November when 47,600 found new jobs.
However, the strong employment growth is somewhat of a double-edged sword.
The further tightening in labour market conditions presents a risk of a wages blow-out - a situation that would add to inflationary pressures already evident in the economy and boost the case for another rate hike.
"Although jobs growth slowed in December, the gain in employment remained solid, keeping labour market conditions as tight as a drum and, therefore, maintaining upside pressure on wages," JPMorgan economist Helen Kevans said.
"Rising labour costs, combined with healthy corporate pricing power and firm domestic demand, will add to broader inflation pressures," she said.
Ms Kevans said whether or not the Reserve Bank of Australia (RBA) hikes rates in February will largely hinge on December quarter consumer price index figures to be published next Wednesday.
If if core and underlying inflation growth is above the RBA's target band of between two and three per cent, as many economists expect, the central bank is likely to raise the cash rate by 25 basis points to 7%.
However, Ms Kevans said RBA officials will also take note of the outcome of the next US Federal Reserve meeting on January 30, at which it is expected to cut interest rates.
Some pundits have even suggested the Fed - the US equivalent of the RBA - could cut rates by as much as 0.75% in an effort to stimulate a US economy already teetering on the brink of recession.
"Signs that the Fed will continue to cut US interest rates aggressively in coming months may make the RBA reluctant to hike interest rates at its February meeting," Ms Kevans said.
"Domestic conditions alone, however, undoubtedly warrant an imminent rate hike from the RBA."
Su-Lin Ong, a senior economist and fixed income strategist with investment bank RBC Capital Markets, said it would be a "very close" call.
"Today's data largely confirm what we - and the RBA - already know," Ms Ong said.
"Reflecting the strength of the overall economy, the labour market remains exceptionally strong and healthy, and the buoyant leading indicators suggest that this picture is unlikely to change anytime soon.
"Indeed, the multi-decade low in the unemployment rate highlights the very tight state of the labour market and the constraints that face an economy which has just entered its 17th consecutive year of growth.
"(But) domestic resilience and inflation risks will be weighed against intensifying concerns over US growth, global credit concerns, and defacto tightening by the key domestic lenders."
The RBA board next meets on interest rates on February 5 with its decision to be announced the same day.
The Australian Bureau of Statistics (ABS) today released figures showing the unemployment rate fell to 4.3% in December, from 4.5% the previous month.
A total of 20,100 people joined the workforce in December, including 6,300 full-time and 13,800 part-timers, after an impressive rise in November when 47,600 found new jobs.
However, the strong employment growth is somewhat of a double-edged sword.
The further tightening in labour market conditions presents a risk of a wages blow-out - a situation that would add to inflationary pressures already evident in the economy and boost the case for another rate hike.
"Although jobs growth slowed in December, the gain in employment remained solid, keeping labour market conditions as tight as a drum and, therefore, maintaining upside pressure on wages," JPMorgan economist Helen Kevans said.
"Rising labour costs, combined with healthy corporate pricing power and firm domestic demand, will add to broader inflation pressures," she said.
Ms Kevans said whether or not the Reserve Bank of Australia (RBA) hikes rates in February will largely hinge on December quarter consumer price index figures to be published next Wednesday.
If if core and underlying inflation growth is above the RBA's target band of between two and three per cent, as many economists expect, the central bank is likely to raise the cash rate by 25 basis points to 7%.
However, Ms Kevans said RBA officials will also take note of the outcome of the next US Federal Reserve meeting on January 30, at which it is expected to cut interest rates.
Some pundits have even suggested the Fed - the US equivalent of the RBA - could cut rates by as much as 0.75% in an effort to stimulate a US economy already teetering on the brink of recession.
"Signs that the Fed will continue to cut US interest rates aggressively in coming months may make the RBA reluctant to hike interest rates at its February meeting," Ms Kevans said.
"Domestic conditions alone, however, undoubtedly warrant an imminent rate hike from the RBA."
Su-Lin Ong, a senior economist and fixed income strategist with investment bank RBC Capital Markets, said it would be a "very close" call.
"Today's data largely confirm what we - and the RBA - already know," Ms Ong said.
"Reflecting the strength of the overall economy, the labour market remains exceptionally strong and healthy, and the buoyant leading indicators suggest that this picture is unlikely to change anytime soon.
"Indeed, the multi-decade low in the unemployment rate highlights the very tight state of the labour market and the constraints that face an economy which has just entered its 17th consecutive year of growth.
"(But) domestic resilience and inflation risks will be weighed against intensifying concerns over US growth, global credit concerns, and defacto tightening by the key domestic lenders."
The RBA board next meets on interest rates on February 5 with its decision to be announced the same day.
Labels: Australia, unemployment
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