GOLDMAN SACHS: Australian Companies Are About To Step Up The Job Cuts

Job cuts

There was a reality check for the Australian economy today in the jobs numbers – almost 11,800 jobs were lost in August against market expectations of 10,000 positions created.

Job cuts illustration: Shutterstock

It’s on trend though – with the economy in transition unemployment, currently 5.8%, is forecast to cross the 6% barrier over the coming year.

In a note this afternoon Goldman Sachs’ chief economist Tim Toohey says companies are likely to move into a higher gear on cost management:

Looking ahead, we expect the unemployment rate to rise further – towards a peak of 6.2% in mid-2014. This expectation is driven by 1) weak leading indicators/alternative labour market measures; 2) an expectation that companies’ “cost-out” strategies will shift from labour utilisation management to outright head-count reduction; and 3) fiscal consolidation at the state and federal level will create headwinds for public sector job creation.

So companies that are cutting back on shifts or overtime at the moment might be preparing tougher measures to protect their margins.

The GS team are also sticking with their prediction for a rate cut in November.

Notwithstanding today’s weak jobs report, the recent 2Q2013 GDP report likely precludes the RBA from seriously entertaining a rate cut at its next meeting. We continue to expect a rate cut in November, however, given that i) we expect the activity data over the coming weeks to disappoint, ii) weak retail trends will likely worry the RBA just ahead of the critical Christmas retail period, iii) the 3Q2013 inflation report is likely to be benign, iv) the AUD has remained elevated and a constraint to financial conditions, and v) by November, we will be at the threshold where the key headwinds to growth (including that from the unwind in mining capex) are poised to intensify quite significantly.

2.25% here we come.

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