Strong employment figures set the scene for higher interest rates

The surprising fall in unemployment figures (national unemployment down from 5.5% to 5.3% in January) has caught almost everybody off guard. The consensus amongst economists prior to the announcement was that Australia’s unemployment rate would rise to 5.6%.

The rate of unemployment has fallen now for three straight months on a seasonally adjusted basis after bouncing between 5.7% and 5.8% between May and October last year.  The trend certainly suggests that unemployment has peaked significantly lower than the 6.75% forecast by the Federal Treasury June this year.

National unemployment rate

The low unemployment figures demonstrate how resilient Australia has been through the recent tough economic times.  The average rate of unemployment throughout the OECD countries is sitting at 8.8% and the US unemployment rate is now just below 10%.  Spain is recording the highest rate of unemployment in the industrialized world at 19.5%.

The headline figures do hide a growing amount of part time jobs and subdued level of growth for full time jobs.  There are actually 2,200 fewer full-time jobs across Australia than there were at the same time last year (based on seasonally adjusted figures) – a fall of 0.7%.  At the same time the number of part time workers has increased by 166,900 over the year to January 2010 – a gain of 7.7%.  It looks like a stronger than expected unemployment rate has come at the expense of full time jobs.

Annual change in job numbers full time v part time

On a state by state basis the rate of unemployment shows some variance.  Of the Australian States, South Australia is recording the lowest rate of unemployment at just 4.4% while the highest jobless rate is in New South Wales with 5.6% unemployed.

Unemployment rate - States

While the news is great that more people have a job, the flipside remains that the Reserve Bank is likely to respond with further interest rate rises.  Low unemployment leads to wage pressures, improved confidence and greater consumption – all of which will fuel inflation and give the RBA cause to continue lifting interest rates.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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