Rate cut call strengthened by rise in unemployment

The ABS recorded the loss of 12,000 jobs in January with the falls concentrated in full-time employment.

The fall in employment combined with an unchanged labour force participation rate saw unemployment rise from 6.1 per cent to 6.4 per cent, its highest since June 2002, according to AMP Capital chief economist Shane Oliver.

“Over the last year unemployment has drifted up from 6 per cent to 6.4 per cent,” Mr Oliver said.

“While employment rose by 185,000 over the last 12 months, this has not kept pace with the labour force, which expanded by 223,000 and so the trend in unemployment remains up."

Forward looking indicators of the jobs market – such as the ANZ job ads and the employment component of the NAB survey – point to jobs growth ahead, but for the next six months or so it is unlikely to be strong enough to prevent a further rise in the unemployment rate, Mr Oliver said.

“We had thought unemployment would peak at 6.5 per cent this year, but that is at risk of proving too optimistic,” he said.

Australia’s unemployment rate is now higher than that in the United States, he noted.

“Our view remains that the RBA will cut interest rates again in the months ahead, and the rising trend in unemployment is consistent with that,” Mr Oliver said.