Strong jobs growth could lead to rate rise

Surging full time jobs growth could tip Australia into full employment early next
year, forcing the central bank to raise interest rates before wages blow out,
economists say.
The release of better than expected jobs figures on Thursday improved Australia's
economic outlook after the jobless rate fell to 5.2 per cent in November and almost
55,000 jobs were created.
While some analysts were worried by recent weak retail sales and economic growth
figures, economists say the November employment report now puts the focus on looming
wages pressures.
"If employment continues this strongly and we approach full employment in the first
quarter of next year as we expect, then wages are going to go up significantly and
we know the RBA (Reserve Bank of Australia) gets a bit uncomfortable when wage
growth hits four per cent," JP Morgan economist Helen Kevans said.
The participation rate rose to a record high of 66.1 per cent in November as more
people of working age joined the workforce.
Ms Kevans said other market economists may not be as pessimistic now as they were
about the outlook for the economy.
"We think it's still very strong, the economic fundamentals are still very much in
place and very healthy, so we do think the tightness in the labour market and the
upside pressure on wages will force the RBA to tighten early next year."
She said Western Australia, which recorded an unemployment rate of 4.5 per cent in
the month, could see more pressure on wages, particularly in the mining sector.
Ms Kevans predicts the RBA will increase the cash rate to 5.00 per cent in February
and said it was surprising the market hadn't priced in a rate rise until September,
2011.
Annual employment growth was now running at 3.7 per cent, the highest since 2005,
she said.
The economy added 54,600 new jobs in November, when the market forecast was for an
increase of 20,000, figures from the Australian Bureau of Statistics show.
The jobless rate fell to 5.2 per cent in November, from 5.4 in October.
The participation rate in November was a record high for the monthly series, 66.1
per cent, up from an unrevised 65.9 per cent in October.
National Australia Bank chief economist Rob Henderson said the only thing stopping
the unemployment rate from falling below five per cent was the rising participation
rate.
He said the latest employment numbers were "very strong" despite some leading
indicators such as jobs vacancies suggesting slowing demand.
"From the RBA's perspective, the strength of the labour market, the buoyant
conditions, are continuing to suck more people ... into the labour market and that's
keeping a lid on the unemployment rate in the sense that it's stopping it from
falling," he said.
Mr Henderson noted unemployment in NSW fell to 5.1 per cent, the second lowest in
the nation after Western Australia.
He said the NSW result could be a sign all parts of the economy were strengthening,
not just mining.
ICAP economist Adam Carr said the strong employment data confirmed the underlying
strength of the Australian economy.
"These are very good numbers and they show why this growing pessimism on the
Australian economy is completely unwarranted," he said.
He said the positive numbers may prompt the RBA to raise rates in the first quarter
of 2011.