Jobless figures indicate start of turn around

Figures for April issued by the ABS reveal that the unemployment rate edged higher to 4.2 per cent. This increase occurred notwithstanding a strong increase in full-time employment. Experts say that further rises can be expected in the coming months.

The unemployment rate has now climbed from 4 per cent in February which was the lowest in over 30 years. The increase happened despite a further 25400 jobs being created in the month. The total number of Australians employed now totals 10.7 million. Full-time employment increased by 19000 to 7.7 million and part-time employment increased by 6300 to 3.1 million. The unemployment rate rose to a seasonally adjusted 4.2 per cent in April from 4.1 percent in March, the Australian Bureau of Statistics (ABS) said today.

The male unemployment rate decreased by 0.1 percentage point to 3.6 per cent and the female unemployment rate fell by 0.2 percentage points to 4.4 per cent. The participation rate in April was 65.4 per cent, compared with 65.3 per cent in March.
Lehman Brothers chief economist Stephen Roberts said the labour market was likely to show weakness in coming months, though pressure remained on interest rates due to the risk of wages inflation.

"The next three months will see one material weakness in the employment reading," he said.

"It takes a while for employment to turn down and when it turns down, it turns down more than you'd expect but we're not there yet."

But he said the strong rise in employment growth would be a disappointment for the Reserve Bank, which is expecting domestic demand growth to slow and thereby cool inflation.
Meanwhile the RBA increased official interest rates in February and March, taking the cash rate to a near 12-year high of 7.25 per cent. The central bank wants to slow down domestic spending in a bid to arrest inflationary pressures in the economy.

However, ICAP senior economist Matthew Johnson said the labour market would continue to be strong over the remainder of the first half of this year.

Mr Johnson said there was a risk the tight labour market could cause a wages-based rise in inflation.

"There's certainly a little bit of fear in the market that unemployment at these levels, combined with unions who are looking for a bit of blood, might produce a bit of wage inflation," he said.

"But at this point the labour market seems to be fairly benign."

In a statement accompanying the Reserve Bank's decision to leave interest rates on hold on Tuesday, governor Glenn Stevens said there was accumulating evidence of slowing economic growth, which could see the central bank leave interest rates on hold.

Published on May 5-th, 2008 in Financial Planning
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.