Australian economy gained +50,000 jobs in January

Australian economy added more than 50,000 jobs in January

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The resilience of the Australian labour market is remarkable. The economy added a massive 52,700 jobs in January (J.P. Morgan: 5,000, consensus: 15,000), bucking expectations for a moderation in employment gains in the wake of the RBA’s assertive rate hikes and the solid gains recorded in months prior. Between September and December the economy had added an astonishing 141,000 jobs.

The forward looking indicators of employment signal that such gains in employment are unsustainable (ANZ job advertisements tanked 8.1%m/m in January), but the unemployment probably already has peaked at 5.8%. Indeed, if this is correct, it would mean the unemployment rate topped-out at just 1.9%-points above the 3.9% trough touched in February 2008, a stark contrast to the sharp rises recorded elsewhere across the globe. The unemployment rate slipped to just 5.3% in January (from 5.6%), but could meander higher in coming months given that business confidence and hiring intentions took a hit from recent hikes to the cash rate.

The spike in employment was driven by a 36,900 jump in part-time jobs, whereas full-time jobs increased by 15,900. A shift from part-time to full-time work should, however, occur during the remainder of the year as firms rebuild reduced hours of existing staff. Workers’ hours fell 1.0% over the month, marking the largest fall since August 2008.

The monthly employment gains are at levels witnessed during the last resource boom. The concern for the RBA will be how big monthly employment gains will be when the next boom gets underway, which is not until the latter half of the year. The swelling investment pipeline and strengthening demand for Australia’s key commodity exports mean that significant employment gains will be recorded in the resource rich states in 2H10 This will lead to further tightening of the labour market and add upward pressure to inflation, reaffirming our view that the RBA will continue hiking the cash rate throughout 2010. In Western Australia, for example, the unemployment rate already has tumbled from 5.7% in September to just 5.0% as of January this year.

In the near-term, though, there are reasons for the RBA to be cautious. The RBA’s main concern (as signaled last week following the Board’s shock decision to leave the cash rate unchanged) is the resilience of the consumer in the wake of the 75bp of tightening delivered in 4Q. Indeed, today’s employment numbers are remarkable, but since the RBA’s decision last week, the other data has generally disappointed, with falls seen in retail sales, home loans, and consumer confidence. We suspect that the next move in the cash rate will be a 25bp hike in April. The RBA’s March Boarding meeting is less than three weeks away, and there is little domestic consumer data between now and then for the RBA Board to chew on. By April, though, the RBA will have more information by which to measure the underlying strength of the Aussie consumer.

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ENDS

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