CHART: Australia's surging employment could force an interest rate hike in 2016

Getty/Joerg Koch

Australia’s employment market is on a tear. Over the past two months the Bureau of Statistics reports the economy has produced 127,400 new jobs. That’s the fastest pace of 2-month growth since the late 1980s, taking total employment to 11,900,637, another new record.

Of course, there are many questions about the accuracy of the data. And no one really believes the economy created 71,400 jobs in November. But whatever you might think about the accuracy of the ABS monthly Labour Force report the economists verdict is clear. Any monthly figure might be rubbery, but the trend is strong.

That’s the trend to more employed people and an acceleration in employment growth.

It’s put paid to any chance of a rate cut says Chris Caton from BT Financial Caton:

The second humongous rise in employment and the second successive fall in unemployment should effectively rout all those calling for further rate cuts. Some will question the veracity of the data, of course. They always do.

Yet another puzzling employment report, exhibiting strength that few are prepared to accept at face value. Nevertheless, it can’t be discounted completely. Until there is clear evidence to the contrary, the case for a further rate cut has evaporated.

But if the chance of a rate cut has evaporated could a rate hike be on the agenda for 2016?

That’s a question that has to be asked given that the last time employment growth was running this fast rates were either 2.25% (2010) or 5.25% (2008) higher than the current RBA cash rate of 2%.

Most economists will, in the back of their minds be expecting some sort of “mean reversion” in the strength of Australia’s employment market. At the very least they’ll be waiting for the apparent statistical quirks the ABS identified in yesterday’s release to rotate out before they get to excited about the strength of the employment market.

The RBA won’t be in a hurry to rush to a decision either. Not least because Australia is in the midst of a difficult economic transition and headline inflation is running at just 1.5% per annum.

But the Q3 national accounts did show a broadening of growth in the domestic economy, the Australian dollar is providing a lift and business conditions are strong. So maybe the jobs market strength is a sign that the transition is working better than we all appreciate.

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