Surprise fall in unemployment rate could kill hopes of an October rate cut: Economy roundup

Yesterday’s surprise fall in the unemployment rate to 4.1% – the lowest level since March – will have given the RBA plenty to think about as it considers whether or not to cut rates again in October.

Yesterday’s surprise fall in the unemployment rate to 4.1% – the lowest level since March – will have given the RBA plenty to think about as it considers whether or not to cut rates again in October.

Economists – including RBA Governor Glenn Stevens – have been tipping a rise in the jobless rate as the economy slows, and yesterday’s jobs data has left everyone wondering whether the economy is travelling as badly as first thought.

But ANZ economist Katie Dean has warned mortgagees not to get too despondent – a rate cut might not happen next month, but it certainly isn’t too far away.

She says the jobless rate fell mainly because the number of people actually looking for work decreased, and she points out that “more people leaving the labour force is not exactly good news”.

“Moreover, the leading indicators of employment, including ANZ job ads this week, suggests that the unemployment rate will rise (gradually) from here.”

Dean is still tipping a rate cut before the end of the year, although she admits an October cut is no longer a “done deal”.

She also points out that the state of global financial markets will be weighing heavily on the RBA when it meets early next month.

Yesterday the Australian sharemarket crashed to a two-and-a-half year low as a result of the continuing global financial crisis and falling commodity prices. The market fell 1.9% yesterday and the dollar slipped below US80 cents.

This morning things have improved somewhat, with the benchmark S&P/ASX200 index up a just over 1% to 4862.7 points.

The banks still remain under scrutiny by investors. Concerns are mounting about NAB’s exposure to sub-prime debt, with one analyst suggesting the bank faces write-downs of up to $1 billon on the value of the collateralised debt obligations it still holds.

It looks like investors are in for a rocky few weeks.