Borrowers not out of the woods yet

There are growing signs that the economy is starting to slow and interest rate rises may be at an end but another strong month of jobs growth in March is a reminder that Australian borrowers are not out of the woods yet.

And even if the Reserve Bank ends up not raising official rates further, in the ongoing shakeout from the global credit crunch there is no guarantee lenders may not have further unilateral rises in their home loan rates in store as their borrowing costs rise.

The relentless process of job creation is still showing little sign of abating despite the unemployment rate having crept up a notch to 4.1 per cent last month. Another 15,000 new jobs created means a powerful driver of economic growth and spending – and don’t forget inflation pressures – remains in place for now.

Employment growth is a lagging indicator, however. Slow to pick up when the economy is in recovery mode, employers also seem to carry on employing once they get into the swing of it, even when the clouds begin to gather. So it may be that job creation starts to tail off soon and employment falls into line with other indicators suggesting a slowing economy. The more forward-looking job advertisement measures point to this, as does the NAB’s business conditions survey, which has returned its worst reading in more than five years.

Consumer confidence is also an important pointer. The Westpac-Melbourne Institute index of consumer confidence has fallen to a 15-year low and failed to record its traditional bounce-back following a rate-rise inspired plunge.

Despite modest rises in approvals for both houses and apartments in March, the rate of new construction is continuing to suffer under successive interest rate increases. Apartments approvals are 21 per cent down on the levels of a year ago while for houses the numbers are more healthy, up 10 per cent on 12 months ago.

We may have seen the end of official interest rate rises, inflation figures out on April 23 will be the next big test of that. But if rates don’t rise further, expect them to remain on hold for some time – the first cuts to rates may still be some time off.

Infochoice.com.au