Peter Martin Economics Correspondent
July 7, 2009
THE Reserve Bank board is likely to hold its nerve and keep interest rates steady despite new evidence pointing to a hiring freeze and jump in unemployment.
Newspaper and internet job advertisments slipped a further 6.7 per cent in June to roughly half its level of a year ago and the lowest level since the take-up of internet advertising, according to the ANZ employment survey.
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Newspaper job advertisements in the Herald and the Daily Telegraph slipped 1.2 per cent in June to be down 48 per cent on a year before.
An ANZ economist, Warren Hogan, said that while employers had stopped hiring they were still “hoarding labour” and were yet to seriously shed staff.
“For the moment population growth is driving the unemployment rate up rather than widespread job losses,” he said. “The key to the future is whether … labour shedding picks up.”
Forecasters surveyed by Reuters expect a further 25,000 jobs to be lost when the official figures are released on Thursday, which combined with population growth would push up the unemployment rate from 5.7 per cent to 5.9 per cent. Most expect an unemployment rate of 7 per cent by December.
The Reserve Bank board is likely be unmoved by the outlook for Australian unemployment when it holds its monthly meeting in Sydney this morning, focusing instead on improving prospects for China, which is now Australia’s biggest export customer.
Since the bank’s governor, Glenn Stevens, declared China’s recovery to be “real” at a business function in May, Reserve Bank staff have firmed in their view that increased demand by China for Australian raw materials reflected an economic rebound rather than speculative stockpiling.
Australia’s exports to China have hit record highs in each of the past three months, eclipsing exports to Japan.
The Reserve Bank believes that while there might be an element of speculation to these purchases, they are primarily driven by real and probably sustainable demand flowing from the Chinese Government’s stimulus program.
The bank expects the International Monetary Fund to revise up its outlook for China when it reports tomorrow.
At home the Reserve Bank is buoyed by confidence surveys suggesting a return to optimism among businesses and consumers and by some of the results from its business liaison program.
A Treasury report finds conditions in the mining sector better than had been expected and Australia’s retail and construction sectors “buoyant”.
However it finds manufacturing conditions mixed, with “those operating in the food and beverage sector or supplying lower value retailers generally enjoying relatively benign conditions” and “those engaged in the production of consumer durables and business plant and equipment less sanguine”.
But it says even among heavy manufacturers “several contacts believed the bottom of the current economic cycle may have been reached”.
Financial markets expect the Reserve to keep rates on hold today for the third consecutive month, but expect at least one further cut by the end of the year.