Somewhere in the past day or so, someone wrote that Reserve Bank Governor Glenn Stevens has developed a reputation for taking what seems to be tough decisions at the wrong time, and later being proved right.

I can’t remember who the author was, or where it was written, but not even Mr Stevens would have expected this week’s rate rise of 0.25% (to 3.25% for the cash rate) to be vindicated so quickly as it was by today’s labour force and unemployment data for September from the Australian Bureau of Statistics.

Every measure went the right way: more jobs, especially full time gigs, participation rate up, more hours worked and the headline rate down to 5.7% from 5.8% in August. 40,000 new full and part time jobs created in the month; 35,400 of those full time.

The result, which made a mockery of market economists’ forecast of a rise in the unemployment rate to 6% and job losses of 5,000 to 10,000, now raises the distinct chance that the unemployment rate may be peaking below 6%, which is even lower than anyone would have dreamt of, even a week ago.

The news sent the Australian dollar off again, climbing a cent from just over 89 US cents to a touch over 90 cents, the highest level for well over 14 months. It’s jumped 3 US cents since last Friday.

The jobless rate has been around 5.7% to 5.8% now since March-April of this year. In fact, the rate was 5.7% in March and the number of people out of work has risen, by just 9,000 between then and last month, while the labour force has grown by 58,000 people.

If anything it has locked in another 0.25% at the November board meeting and possibly the December meeting, which says goodbye to 2009.

It is complete vindication for the RBA Governor and the board. There had been a danger that if the market forecasts were right and unemployment shifted to 6% or higher this month and next, the central bank would have been criticised for lifting rates into a worsening labour market.

There is though the trade-off between the higher rates, higher currency and the impact of that on export income in coming months.

The ABS said that “Employment increased by 40,600 to 10,805,600. Full-time employment increased by 35,400 to 7,589,800 and part-time employment increased by 5,200 to 3,215,800.

Unemployment decreased by 3,800 to 658,600. The number of persons looking for full-time work increased by 9,500 to 497,400 and the number of persons looking for part-time work decreased by 13,300 to 161,200.

Unemployment rate decreased 0.1 pt to 5.7%. The male unemployment rate decreased 0.1 pt to 5.8%, and the female unemployment rate remained at 5.6%.

Participation rate increased 0.1 pt to 65.2%.

Aggregate monthly hours worked increased 13.4 million hours to 1,522.4 million hours.

This report will bring more calls from those hindsight economists and commentators for the stimulus to be cutback because it was too big. It is already being pulled back: the tax allowance for medium business has gone, the allowance for small business goes at the end of December and the first home buyer and builder grants have been reduced from the start of this month.

A year ago no one knew how the economy would travel as the financial system quaked after the Lehman Brothers failure.

Late this morning the ANZ Bank, the smallest of the four major home lenders, revealed a 0.25% rise in its standard variable mortgage rate to 6.06%. The other three will now follow.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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