The strength of Australia’s jobs market has forced the ANZ’s economics team to change its call that the RBA was going to cut rates at its first meeting of 2016 next February.
But it’s only a temporary hiatus, the ANZ wrote in a note to clients this morning. That’s because while the strong surge in employment will stay the RBA’s hand, they urge “caution against reading too much into the strong headline numbers” which showed “employment rose by nearly 130k persons over October and November”.
That’s even though they say the “improvement in employment is in line with other labour market indicators such as job advertisements”.
What’s troubling the ANZ’s economics team, like many economists and the ABS itself, is the credibility of the recent data releases. The ANZ is taking the data with a grain of salt because it clearly thinks there is statistical glitch in the way the ABS has calculated the numbers.
“The ABS noted that the October and November employment numbers were boosted by ‘sample rotation’, and more time is needed to see how this effect unfolds,” the bank said.
So, even though the team highlights that business conditions remain strong and that “the RBA will be pleased with the recent data, which have clearly come in stronger than expected,” it hasn’t given up on its negative outlook for the economy.
The key arguments that we identified as supporting the case for rate cuts remain valid. In particular, slower growth coming from the housing sector, less stimulus from the depreciating AUD, and subpar global growth will all contribute to slowing economic growth in Australia in 2016.
So it has pencilled in two rate cuts of 0.25% in May and August 2016.
But, if the labour market strength is not revised away, and if the housing market doesn’t translate to a weaker economy, and if the banks aren’t forced into more out of cycle tightenings then, “there is a risk that the RBA will not need to cut rates at all next year,” the bank said.
Key here, it says, is that “if the strength in the labour market does translate to greater spending, this would exacerbate the risk that the RBA is not called into action at all next year”.