19 July 2019
Bob Cunneen, Senior Economist and Portfolio Specialist
Sources: Reserve Bank of Australia and Australian Bureau of Statistics.
Australia’s jobs performance had been luminous over recent years. Australia’s unemployment rate fell to only 4.9% in February 2019 given strong jobs growth (blue line). However the weak performance of the housing and retail sectors are now casting a shadow with the unemployment rate grinding up to 5.2% in June.
The Reserve Bank of Australia (RBA) has recognised that the lights are dimming on job opportunities. The RBA now estimates that Australia’s full employment rate is circa 4.5% (red line). The full employment rate is where employment is maximised and inflation pressures are stable. By lowering the cash interest rate by 0.5% to 1% over recent months, the RBA is aiming to support jobs and to close the gap between the current 5.2% unemployment rate and the 4.5% full employment rate.
The recent stimulus measure from the RBA and the Federal Government should eventually improve the jobs market. However there can be a considerable time gap between when income tax cuts and lower interest rates hit the savings accounts and when the consumer finally responds with increased spending. The lights should come back on for the Australian consumer and the jobs market sometime soon. But estimating exactly when is anyone’s guess.
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