Rates to stay on hold, for now
After months of falls in employment, there are some signs our job market may be turning the corner. This week the Department of Education, Employment and Workplace Relations’s skilled vacancies index showed that skilled job vacancies rose by 1.0 per cent this month, the first monthly increase since November 2007. This is good news for the economy, as an improvement in employment conditions is an important component of our economic recovery.
Should employment figures continue to improve, it is likely the Reserve Bank will start raising rates sooner rather than later. While it is crucial the RBA continues to support the still fragile state of our economy, it must still keep a close eye on growth to ensure it is not overheating the economy. Higher inflation levels are not goond because they devalue our currency.
The central bank has a difficult balance to strike. While our economy is faring better than most economies around the world, we are not out of the woods yet. On an annual basis, the skilled vacancy index, at 37.1 points, stood 55.7 per cent lower than in August 2008. Our construction sector also continues to suffer from the economic downturn. Other data showed that total construction work done in Australia fell 0.1 per cent in the June quarter in chain volume terms, seasonally adjusted. The Australian Bureau of Statistics said total construction work done was valued at $35.031 billion in the June quarter, compared with an upwardly revised $35.062 billion in the March quarter.
Meanwhile, one private think-tank´s Coincident Economic Index, which measures current economic conditions in our country, declined 0.1 percent for the month. The CEI was pushed lower by a decline in retail trade, with employed persons and retail trade declining in June and household disposable income and industrial production unchanged.
That means it is too early to be confident about an economic recovery. However, there are signs of optimism. The think-tank`s Leading Economic Index, a key gauge of our economic outlook over the next two quarters, improved by 0.9 percent in June, entering positive territory for the first time since September 2008. The LEI increased for the fourth time in the last five months, with six of the seven measured components showing improvement in June. The largest gains were seen in building approvals, the yield spread, share prices and the money supply.
Taken together, the outlook for our economy is certainly brighter, which increases the probability of a rate hike at some point this year. However for the time being, it is likely the RBA will continue to support our economy and keep rates on hold.
Infochoice.com.au