Great News on Jobs – RBA to Hold in June

 

The employment data work strongly against an interest rate cut in June.   While the monthly numbers are always volatile, two zigs in a row, breaking the zig-zag patterns for employment data over the past year or so could well be a short-term game changer for the RBA.

Having cut 50 basis points in May, a follow up 25 basis points in June when there is fresh news showing good growth in employment and a sub-5% unemployment rate should see the RBA move back to hold.  For now at least.

To summarise, employment rose 15,500 in April after rising 37,600 in March to be 0.7% above the level of a year ago.  This is a nice pick up in job creation after annual employment growth fell to zero at the end of 2011.  The unemployment rate fell to 4.9%, rate not bettered since December 2008.

To be sure, there are still very valid reasons why interest rates are likely to move lower – global economic problems and market ructions figure large.  The contraction about to hit the economy from the fiscal tightening in the Budget will also see the RBA have room to cut if growth and inflation pressures dictate.

Global credit markets are as fragile as Tony Abbott with an economics textbook, with scope for ugly trends as Eurozone politics and policy swing ever-closer to a major disruptive event.

It is also interesting to note that house prices, as measured by RPData, are back in a downward funk, having fallen by 0.6% so far in May and this after falling 0.8% in April.  Recall these falls are on top of a 3.6% fall in house prices in 2011.  This risks undermining consumer sentiment and banking profitability – more significant falls would create a problem that the RBA would need to react to with easier policy.

But for now, the run of data on retail sales and employment is so much better than expected that the RBA can sit tight in June.