Australian employment market still very strong

More good news today which will keep Federal Treasurer Wayne Swan very happy. The October unemployment rate held steady but the real good news is that full time jobs have again surprised the market on the upside. Australia added 18,700 new full time employees, part time work went backwards but on an overall net basis we still managed to add a new 10,700 jobs – an excellent outcome that many other developed economies can only envy. The data out today is perhaps the most important read on the Australian economy so far this year. Not only have we managed to navigate ourselves through problems in Europe, the United States, China’s soft landing and lower commodity prices – but this has all come as the government seeks to tighten the fiscal position very aggressively in order to generate a budget surplus outcome next year.

On a geographical basis, Barry O’Farrell will be happy to see that NSW’s unemployment rate remains steady at 5.2% – below the national average and not trending higher. Queensland is seeing some improvement but no joy for Campbell Newman until it slips below 6%, last at 6.2%. In Western Australia, the full effect of lower iron ore and commodity prices generally is finally starting to flow through with the rate of unemployment “jumping” to 4.6% – a huge rise when compared to 3.5% in June. This market needs to be watched very closely.

Bottom line: We go into the busy Christmas trading period with a solid job market and interest rate cuts filtering through the economy. This is likely to see the RBA pause again in December, take a well-deserved holiday in January and re-evaluate the situation in February. Our view on rates hasn’t changed for the past seven weeks. The main beneficiary of all this is the Australian dollar which continues to find solid support, last at US$1.0421. We think the 20 day moving average near US$1.0344 will continue to hold when if tested over the next few days as the United States starts its messy fiscal negotiations.

In terms of an election, we think the Gillard government will move early before the budget, potentially calling an election sometime in March, taking advantage of good jobs data and a potential rate cut in February. We think a budget surplus actual outcome will be very difficult to achieve and calling an election before May is firming as a stronger probability for the time being.