There might have been high fives and champagne popping all-round at the Reserve Bank (RBA), following yesterday’s unemployment rate, which has, against all odds, fallen.
This is massive news and it does a lot to justify the RBA’s desire to get in early to raise interest rates.
I must admit I thought they had jumped the gun but I will bow to their good judgment this time.
They did get it wrong in late 2007 and early 2008 when they were raising rates as the credit market freeze was getting deeper and appreciably colder.
On the other hand, as someone who has always been in the “we could avoid a technical recession” camp and who stuck his neck out to bag the doomsday merchants who said we were going to hell in a hand basket, this is the kind of result that has justified my optimism.
Total employment rose 40,600 in September, which was the biggest jump in two years.
This has taken the unemployment rate from 5.8 per cent to 5.7 per cent. Unbelievable!
By the way, as I have said before, you can’t always trust economic statistics, so unemployment could go a bit higher but as BT Chief Economist Chris Caton suggested on my program — SWITZER on Sky Business — 5.8 per cent could end up being the top.
Remember the Yanks’ jobless rate is 9.8 per cent and rising.
On celebrating, I reckon there would have been some secretive backslapping and cheering in Wayne Swan’s office in Canberra as well, though he is bound to keep the “we aren’t out of the woods yet” line going — that’s smart politics. He also has to contemplate a new political challenge that the great result switches the media to the next negative question — should the stimulus be peeled back?
But wait, there’s more negativity and anxiety the media can put the spotlight on and that’s the old chestnut of interest rates.
What this jobs number means for future interest rate rises if the emergency situation is looking more normal by the day will be a big issue in the weekend newspapers as the business thinkers start rubbing their crystal balls.
The next big number focus will be on 28 October when we get the latest reading on inflation. A high one will push the Reserve Bank to go again in November and you can’t rule out the chance that they could even slug us with a 0.5 per cent rise!
If the inflation number comes in nice and low then my tag “the miracle economy” will have a whole lot more meaning. And it should make the Reserve Bank back off rapid rate rises but this could be a wish that won’t come true.
I regularly recommend praying for the economic health of China but I now would throw in a few more prayers for low inflation. Go Australia!
Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
We're giving you FREE access to find out which stocks our Switzer Report experts think have the highest upside in October and beyond!