Rate rise on the cards?

The rise in job advertisements announced this morning will add to the speculation that the Reserve Bank will raise interest rates as early as tomorrow. The 4.4% rise in September has the economists predicting that the labour market is entering an early recovery phase.

And the case for a rise is supported by the August retail sales rise that surprised the market by surging 0.9% despite the diminishing affect of the Government’s stimulus package.

So on the surface it looks like Australia is powering ahead into an inflationary environment and needs a blast of cold air from the Reserve Bank to cool things down.

But it is a big gamble.

First, just take a look at the global economy. It is still so wobbly that no one is sure it won’t W.

The news from the US over the weekend was more sobering. Employers in the US slashed 263,000 jobs during September which puts the US unemployment rate to 9.8%. Just think about that! The consumer mad US now has the highest level of unemployment in 26 years.

In Australia it isn’t as rosy as it looks. About 2000,000 people have moved from full-time work to part-time. The affects of this will flow through not just to Government coffers but to retailers this Christmas.

Building approvals also fell 0.1% in August and the all giving first home owners scheme was cut back last week. The commodity boom that is fueling so much confidence at the big end of town does not flow through to the small business end, which receives little run off. And the credit needed to fuel the next phase in growth for the entrepreneurial SME sector is still very hard to access.

Small and medium businesses are struggling to fill their order books and the banks are still preparing for a rise in SME insolvencies.

My guess is the Reserve Bank will leave it another month to raise rates. And for the sake of the SME sector, I certainly hope so. At least it gives us another month’s breathing space to try and get a better picture of where we are in this cycle. On the way out? Or still bumping along the bottom?