The prospects for Australian interest rates are trending on the downside, according to JP Morgan.
Tom Kennedy, Economics and Policy Researcher at the bank, noted today’s unemployment rate of 5.9% is at the upper end of the Reserve Bank’s 5-6% forecast in February.
Importantly, said Kennedy, the latest unemployment rate is 0.2% above the same time last year which means that any prospective growth in employment has clearly stalled.
Kennedy noted the sample rotation methodology applied by the ABS probably weighed on the reported figure. He noted that “the incoming rotation group had a higher unemployment rate (original terms) than the existing sample, while the outgoing group had a relatively larger number of employed individuals”.
In view of that, however, the methodology is in place to emphasise more recent changes in the labour market, so the lower figure is likely representative of poor employment figures in February. Today’s negative result was exacerbated by a higher rate of underemployment in February, said Kennedy.
But in what is an ominous sign for anyone who thinks Australia’s paltry levels of wages growth may have found a bottom, he wrote (emphasis added):
The weakness in annual full-time employment growth continues to be borne out in the underemployment rate (the number of underemployed workers expressed as a percentage of the labour force), which popped higher in February and is now tracking at all-time highs again. As we have previously mentioned, wage growth since 2013 has held a strong negative relationship with the underemployment rate, so today’s pop higher makes the RBA’s objective of engineering a sustained uptick in core inflation all the more difficult. Lastly, the employment to population rate also moved lower in February, and at 60.77% confirms the view that today’s labour data was unambiguously soft.
Kennedy notes that it will take more than one month of data to force a significant policy shift from the RBA.
“We still see the cash rate biased lower in Australia. While this might take some time to play out, today’s data are a salient reminder that underlying fundamentals in the Australian economy are certainly not consistent with higher rates anytime soon,” Kennedy said.