A soggy labour market points to easier policy

Thu, 10 Jul 2014  |  

The less than robust news on the Australian economy continues to roll out – this time it is the labour force release which confirmed a moderate 15,900 rise in employment in June with the unemployment rate ticking back up to 6.0 per cent - this is equal to the highest unemployment rate in over a decade.

The employment data are a little disconcerting – the net change in employment in the last three months is just 20,100, well below the growth in the labour force which neatly explains why the unemployment rate has ticked up. Jobs growth needs to average close to 20,000 a month for there to be meaningful and lasting inroads into the unemployment rate.

To be sure, it is not a dreadful result for the labour market, but the sluggish pace of jobs creation fits with a mix of other recent news which suggests GDP growth in the June quarter will be close to zero with weakness evident in retail spending, dwelling investment and capital expenditure plans.

The impact of the labour force and other recent data on policy makers should see them tilt their discussion towards a monetary easing, with the RBA also worried about the high Australian dollar, the fall away in mining investment and the less than convincing move to domestic demand to drive the economy at a sustainable 3 per cent pace.

The June quarter inflation data, due for release in 23 July, could see that bias to ease monetary policy intensify, especially if as appears likely, it will come in at a pace nearer the middle to bottom part of the inflation target band.

The Australian economy should have an unemployment rate at 5 per cent or less and the current trends suggest we are a long way from reaching the level. This is why low interest rates and a more neutral fiscal stance should prevail.

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Or irrelevant. 

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