Chances of February Rate Cut Dips After Optimistic Employment and Household Wealth Data

  • Dec 19, 2019 AEDT
  • Team Kalkine
Chances of February Rate Cut Dips After Optimistic Employment and Household Wealth Data

The recent statistics announced by the ABS on the unemployment rate and household wealth have reportedly dropped the prospects of an interest rate cut by the RBA in February.

The ABS has declared a fall in the unemployment rate in November, along with a rise in household wealth to record high levels in September quarter.

Unemployment Rate Fell Slightly to 5.2% in November

Australia?s unemployment rate has plunged slightly to 5.2 per cent in November 2019 in seasonally adjusted terms, as reported by the ABS in its latest statistics.

Market experts were anticipating jobless rate to stay at 5.3 per cent. Moreover, the seasonally adjusted underemployment has also dropped by 0.2 percentage points to 8.3 per cent during the month.

The fall in unemployment and underemployment has provided a sigh of relief to the RBA and the Treasurer to rest over the upcoming Christmas holidays.

The decline in these indicators was driven by an increase in employment by 39.9k to 12.9 million people. Employment rose during the month with an increase of 4.2k people to 8.83 million people in full-time employment and 35.7k people to 4.12 million people in part-time employment.

The positive employment figures pushed the Australian dollar high to 66.68 US cents.

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In addition, ABS also announced the following statistics:

  • Participation rate stayed steady at 66 per cent in November.
  • Monthly hours worked in all jobs rose to 1,781.2 million hours, increasing by 2.9 million hours.
  • The monthly underutilisation rate fell to 13.5 per cent, falling by 0.3 percentage points.
  • Employment to Population ratio rose by 0.1 percentage points to 62.6 per cent, marking an increase of 0.2 percentage points since November 2018.

State-wise Results

The largest increases in employment were seen in Queensland and Victoria in November, that rose by 17.3k and 13.7k people, respectively. Only New South Wales recorded a fall of 2,800 people in employment in seasonally adjusted terms.

The unemployment rate rose by 0.1 percentage points in South Australia to 6.3 per cent and by less than 0.1 percentage points in Western Australia to 5.8 per cent during the month. However, the unemployment rate declined by 0.2 percentage points each in Victoria and New South Wales and 0.1 percentage points in Queensland to 6.3 per cent.

Tasmania, Queensland and South Australia saw an increase of 0.5 percentage points, 0.3 percentage points and 0.2 percentage points, respectively in the participation rate in seasonally adjusted terms. On the other hand, New South Wales observed a decline of 0.2 percentage points in the participation rate.

What Economists Have to Say on Recent Unemployment Data?

As per economists and market experts, though the recent increase in employment has made up for a loss of numerous jobs in October, the unemployment rate is likely to rise further due to a continued drop in the job advertisement.

They believe that youth unemployment, particularly for men, and underemployment, especially for women, remain a cause of concern.

The younger people in the country are struggling to find jobs, or sufficient hours at jobs and several other older Australians have joined the workforce, aggravating the issue.

Economists expect this trend to continue into 2020, with youth unemployment remaining a key issue and wages to disappoint further.

Household Wealth Reached Record High Levels in September Qtr

The statistical agency has also declared a rise of 3 per cent in total household wealth in September 2019 quarter to a record high level of $10,912.4 billion, fueled by a real holding gains (adjusted for inflation) on residential real estate.

Through the year, the household wealth has increased by 4.3 per cent, with an increase of 1.9 per cent and 2.4 per cent in population growth and household wealth per person, respectively.

The increase in household wealth was driven by a rise of $322.3 billion in total assets, partially offset by a rise of $4.3 billion in total liabilities. In addition, an increase of 2.9 per cent in the value of residential land and dwellings drove the rise in total assets.

The household wealth per capita also observed its largest increase since December 2016, rising by $10,698.6 to $428,573.5 during the quarter. Moreover, the household net saving increased from -$3.3 billion to $10.7 billion in the quarter.

The country lent $7.7 billion to the rest of the world, recording its 2nd consecutive quarter of net lending following forty-four years as a net borrower, taking the ratio of net lending to GDP to 1.5 per cent.

Economists? View on Rising Household Wealth

The market experts believe that the rise in household wealth was primarily driven by an increase in residential property prices in the quarter.

The recently announced ABS statistics revealed that property prices rose by 2.4 per cent during the quarter, marking a greatest quarterly growth since the December 2016 quarter. The increase in house prices was particularly stimulated by a 3.6 per cent rise in each of Melbourne and Sydney.

As per the economists, the recent household wealth numbers suggest that people are storing up wealth instead of spending. Also, the mortgage debt to residential land and dwellings ratio that fell from 29.2 to 28.6 in the quarter showed that the value of residential land and dwellings is exceeding the mortgage debt.

In addition, the decline in household debt to assets ratio from 18.9 times to 18.5 times also demonstrated that the households used the $7 billion in tax cuts and previous interest rate cuts to save and pay down their mortgage and other debts.

Interest Rate Cut Chances Declined

Though the RBA?s minutes of December meeting signaled an interest rate cut in February, the recent statistics on the unemployment rate and household wealth have lowered the chances of a rate cut in the near future.

In its December minutes, the RBA looked more pessimistic over chances of stronger household consumption and a lift in wages than the Treasury, creating speculations of a rate cut.

The central bank acknowledged that it was ready to ease monetary policy further to meet its objectives of full employment, growth and target inflation. The RBA?s statements enabled market economists to speculate that it is signaling for an interest rate cut next year as soon as February.

However, the market experts have trimmed the probability of February rate cut in the wake of optimistic jobs data, with the odds dropping from 60 per cent to 45 per cent.

The reduced chances pushed the benchmark S&P/ASX 200 lower on Thursday (19th December 2019), that closed 0.3 per cent lower at 6833.1 points.

It will be interesting to keep a watch on the RBA?s rate cut moves amidst the occurrence of a positive sentiment in the economy. Stay connected with Kalkine Media for more economic updates!?


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