Jobs data shows RBA was right to leave cash rate: CommSec's Craig James

GUEST OBSERVER

It is hard to believe that almost 60,000 jobs were created in one month with 40,000 of these jobs in full-time positions.

Still, economic momentum continues to pick up, underpinned by strong home building. Home building approvals are at record highs together with tourist arrivals and car sales.

But in the past job gains of this magnitude are generally followed by downward corrections in the following month.

While the monthly data bobs around from month to month, it’s important to note that 197,500 jobs were created over the past year – the biggest annual job gain recorded in 4½ years. Employment has only fallen three times in the past year and there have been some strong job gains in this period with six monthly increases of greater than 30,000 jobs. So the October figures are hardly an outlier.   

Clearly the Reserve Bank got the call right by leaving interest rates unchanged earlier this month, identifying an improvement in the economy. And clearly there won’t be another rate cut in 2015.

It is possible that the last rate cut has occurred in this cycle.

CommSec still expects rates to remain on hold for the foreseeable future.

We would put down the strong lift in employment to improved confidence levels, low interest rates, stimulus to the small business sector and strong home building.

Unemployment in NSW has hit 5.5%– which in the past has been identified as the “natural” jobless rate – a rate that could spark a lift in wages should unemployment fall further towards 5% and below.

Craig James is the chief economist at CommSec.