Can anyone explain why the Reserve Bank needs to cut interest rates, as quite a few economists, media writers and industry leaders say it will, either next month, or December?

The question arises after the release of the September jobs figures from the Australian Bureau of Statistics which showed a sharper than expected 20,400 increase in the number of new jobs created. Meanwhile the unemployment rate fell to 5.2% from 5.3% in August, while the number of new jobs was double the market estimate of 10,000, with the jobless rate remaining at 5.3%.

The figures are the strongest for six months and are against the recent easing trend in jobs growth that saw just over 21,000 jobs created in the six months to August, against more than 118,000 in the preceding six month period.

Hours worked fell in September for the first time for several months, an indication that the jobs market remains soft with employers adjusting working hours and not staff levels. Jobs growth was split between full and part-time work.

The ABS reported the number of people employed increased by 20,400 to 11,451,200 in September. The increase in employment was driven by an increase in full-time employment, up 10,800 people to 8.044 million, and an increase in part-time employment, up 9600 people to 3.407 million. The number of people unemployed fell by 3,800 people to 634,200 in September, the ABS reported.

So now we have retail sales growing 0.6% in July and September, home loans up for six months in a row, car sales at near record levels, overseas travel at near record levels, the second highest trade surplus in August on record, and no sign of the slowdown that many economists, politicians and media commentators had been widely forecasting. As well, business confidence and conditions improved noticeably last month, according to the latest monthly NAB survey out this week. Cconsumer confidence edged higher as well, looking increasingly at odds with what’s happening in the wider economy.

Consumers remain pessimistic by the standards of the Westpac sentiment survey, but they continue to open their wallets a little wider each month. Yes, both JB Hi-Fi and The Reject Shop both confirmed that their parts of retailing remained tough in the September quarter, while the moaning from David Jones and Myer about the weak sales position in department stores has been deafening.

But not all retailing is like that, and not all of the economy is like that or resembling a “patchwork” as Treasurer Swan described it this week in a statement. Despite some of the more excitable claims, the economy is not suffering from a lack of demand. It is still recovering from the enormous hit in the first quarter from the floods in Queensland, parts of NSW and Victoria and Tasmania and Cyclone Yasi at the end of January.

As the national accounts showed, consumption grew at around 3% in the year to June, which is not a recession.

All combined to hit confidence levels, cut production of coal, iron ore, copper and other minerals as well as many rural products. That helped push the economy into the red in the first quarter (many commentators continue to forget about the strong second half rebound in growth and exports, which both seem to be continuing, if not accelerating).

The post-meeting statement from the October RBA board meeting told us that the RBA was giving itself the room to make a rate cut because of the easing in the domestic economy. Based on the figures we have so far seen for August, the economy is better placed than it seemed a couple of weeks ago, but the RBA still could very well cut rates because it is confident inflation will ease.

Of course a rate cut will become almost automatic if the current moves to settle the eurozone debt and bank crisis are botched and volatility soars once again, as it did for most of September. And by the way of comparison, the UK jobs picture this week for the September quarter was simply diabolical with the number of people out of work at a 17-year high, with youth unemployment at the highest level ever. The US jobless rate remains stuck at 9.1%.

Don’t worry about our jobless rate and small moves around the current level. Compared to the UK and US, we have prosperity and plenty of jobs for people who want to work.

Peter Fray

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