Aussie jobs data enough to prompt rate hike if not for anxious markets

SYDNEY: The fallout in financial markets from the sub-prime loans mess ought to be enough to forestall a rate hike next month – and yet news of strong jobs growth and the looming consumer price index (CPI) figures could mean otherwise.
Ahead of the all-important December quarter consumer price index (CPI) figures next Wednesday, the Australian bureau of statistics has reported another solid gain in employment and a dip in the unemployment rate.
The number of people with jobs rose by 20,100 (0.2%), seasonally adjusted, in December, adding to the very strong 47,600 (0.5%) rise in November.
Combined with a fall in labour force participation to 65.2% of the adult population from 65.3% in November, this brought the unemployment rate down to 4.3% from 4.5% recorded for November.
Throughout 2007 employment grew by 261,200 (2.5%), enough to lower the unemployment rate from 4.6% to 4.3%.
The current rate of employment growth suggests further falls in unemployment, to below the 33-year low of 4.2% hit briefly in September, were more likely than not.
History tells us that declining unemployment almost invariably goes hand in hand with an upward trend in the overnight cash rate set by the Reserve Bank of Australia (RBA).
The half per cent rise in the cash rate over the past year (to 6.75%) is consistent with that pattern.
The complicating factor right now is of course the resurgence of anxiety in financial markets over the fallout from the US sub-prime loans debacle, with the local share market down for the ninth day in a row for the first time since September 1995.– AAP
Speculation about a recession in the US was also casting a shadow over the local economy.
Negative economic fallout from those factors could turn an interest rate hike intended as a prudent move to insure against rising inflation into the one-too-many that turned a soft landing hard.