RBA: Concerns over Australia’s job market - Westpac

Sean Callow, Research Analyst at Westpac, explains that the RBA’s March minutes showed a little more concern over Australia’s job market and this was fleshed out in this week’s statement

Key Quotes

“The RBA started this year sounding very comfortable about the policy outlook. The international economy was notably brighter than in 2016 and Australia’s growth pace was likely to pick up to 3% y/y by the end of 2017. But the March minutes showed a little more concern over Australia’s job market. This was fleshed out in this week’s statement.”

“Governor Lowe noted that “some indicators of conditions in the labour market have softened recently. In particular, the unemployment rate has moved a little higher and employment growth is modest.” This heightens the interest in Australia’s March labour force data next Thursday. February’s report showed total job growth of just 0.9% y/y. The breakdown was even less impressive, with full-time jobs -0.3% over the year versus part-time +3.4%. Meanwhile, the underutilisation rate (unemployment plus underemployment) rose to 14.6%.”

“Yet the RBA statement was also notable for its heightened concern over the housing market. Lowe warned that “(g)rowth in household borrowing, largely to purchase housing, continues to outpace growth in household income” and welcomed the new APRA measures on investor borrowing.

“This is a far from ideal combination – a sluggish job market that argues for lower interest rates but surging house prices and indebtedness. This week we saw the March data on home prices, with regional variation but an overall headline growth pace of 12.9% y/y, the fastest since May 2010. This series is up 69% since Jan 2009, including a staggering 109% in Sydney.”

“Given such strength, market pricing for another RBA rate cut is modest, limiting the damage to AUD. However, long AUD positions are being squeezed by the cooling global risk mood. Perhaps presidents Xi and Trump can cheer up markets when they meet in Florida.”