Jobless fall casts doubt on rate cut

An unexpected plunge in the jobless rate suggests another interest rate cut in October is far from a done deal, economists say.
New data released on Thursday shows the unemployment rate shrank to just 4.1 per
cent in August, its lowest level since March and just shy of the 34-year low of 3.9
per cent set in February.
Economists had expected the rate to rise to 4.4 per cent from 4.3 per cent in July.
"It calls into question whether the RBA will follow up the September rate cut in
October," Lehman Brothers Australia chief economist Stephen Roberts said.
The Reserve Bank of Australia (RBA) cut its key interest rate this month, the first
reduction in nearly seven years on signs of a slowdown in the economy.
RBA governor Glenn Stevens indicated this week that further rate cuts would be on
the way.
But he also expects the unemployment rate will rise by around one percentage point
in the next year or so, suggesting a figure of around five per cent if taken from
the February low.
The data from the Australian Bureau of Statistics (ABS) shows the jobless fall was
accompanied by a 14,600 increase in the number of people employed in August, nearly
three times the number economists were expecting.
This followed a revised 18,700 increase in July.
Federal Treasurer Wayne Swan described the figures as "very solid".
"They are very solid figures with 14,000-plus jobs created and it's very encouraging
and a reminder that the underlying fundamentals of the economy are strong but we are
not immune from the fallout in global events," Mr Swan told journalists in
Melbourne.
The data shows unemployment fell in every state and territory except NSW, where it
bucked the trend and rose to 4.9 per cent from 4.7 per cent, while in the ACT it
remained at a low 2.8 per cent.
But economists again question the reliability of the data following the budget cuts
made at the ABS, which has reduced the sample size of the report by about a quarter.
Retail trade, another key indicator released this week, has had its sample size
slashed by two thirds.
Opposition finance spokesman Peter Dutton said it was hard to have confidence in
these figures.
"It is absurd to think that Wayne Swan - Australia's worst ever treasurer - who
would need accurate economic data to do his job properly, would allow these cuts to
take place," Mr Dutton said.
But Mr Swan stood by the data.
"I rely on the accuracy of the ABS like everyone else does, and the statistician
vouches for these figures," he said.
Questionable or not, Thursday's strong numbers saw financial markets pare back their
forecast for an October rate cut to around a 60 per cent chance from 70 per cent
previously.
ANZ senior economist Katie Dean said the drop in the jobless rate reflected a fall
in the number of people actively seeking employment.
"More people leaving the labour force is not exactly good news," Ms Dean said.
"We still think the RBA will deliver another 25 basis point cut before year-end. But
today's data suggests an RBA rate cut as soon as October is still a close call, and
certainly no done deal."