Another decent chunk of job creation in April, with employment up 14,200 in the month and a nice 106,500 since the end of last year. The unemployment rate was steady at 5.8 per cent, suggesting that the peak in the unemployment rate has probably passed. That peak was 6.0 per cent in January and February 2014.
All of which means the economy is clearly travelling at or above trend, and certainly fast enough to see a decent and sustained lift in employment and for the unemployment rate to be flat to lower over time. The export boom, surging housing construction and decent household consumption growth and swamping any fall away in mining investment.
Solid job creation bodes well for consumer demand and confidence, notwithstanding the best efforts of the government to smash sentiment prior to the budget with a range of tax hikes and spending cuts, some of which may yet not see the light of day.
Measures, such as the Medicare co-payment and the deficit levy look like they will raise chicken feed amounts of money, but the perception is that they will hurt the bulk of consumers and therefore have a negative impact on the economy. The “animal spirits’ of the economy are easily damaged by an offbeat political narrative, like the one we are seeing now as was the case during part of the previous government’s time in office.
It is to be hoped that the jobs market continues to expand and that by the end of the year, the unemployment rate is towards 5.5 per cent – or lower. This looks a fair bet with the huge stimulus to the economy coming from inappropriately easy monetary policy remaining in place.
The risk of this, of course, is that inflation pressures which are already elevated, kick higher and without monetary policy action from the RBA, spilling over to bigger inflation problems down the track.
The longer the RBA wait to start the interest rate hiking cycle, the more it will have to do.
