Employment up for March with rate hike expected later this year: AMP

With generally positive labour market figures for March 2014, AMP Capital has renewed its prediction of a rate hike in September or October, virtually ruling out the possibility of another rate cut this year.

According to the latest ABS Labour Force figures, March saw seasonally adjusted employment rise by 18,100 people, ahead of market expectations of a 2,500 person gain.

Following a 48,200 gain in February, employment is now up 1.1% from a year ago.

Unemployment fell in March, now at 5.8% from an upwardly revised figure of 6.1% in February. However, the decrease can largely be explained by a fall in the participation rate, which AMP Capital’s chief economist and head of investment strategy Shane Oliver also believed factored into an “odd slump” in Western Australia’s unemployment figure which fell from 5.9% to 4.9% for the month.

Full time jobs were down 22,000 for the month across Australia, after an 80,000 job gain in February.

According to Oliver, the “messy details” of the ABS’s latest report and the tendency for monthly volatility in labour data highlights the importance of trend data, which shows monthly jobs growth of about 14,000, with unemployment rising slowly.

Given the available data, AMP considers Australia’s job market better off than media reports suggest, though not as strong as implied in February and January’s data. Forward looking employment indicators such as job vacancies, job ads and hiring intentions as detailed in the NAB Business Survey (see below) suggest gradual improvements in the jobs market. 

While AMP expects that the rising value of the Australian dollar is likely to become a cause for concern for the Reserve Bank, the investment house predicts that the RBA will “renew jawboning efforts” to suppress the dollar’s international value in the coming months, rather than adjusting interest rates. The Australian dollar sits at US$0.94 at the time of writing.