How can the Australian job market continue its growth?

As the Australian job market continues to outperform by adding 24,500 new jobs in October, instead of the expected 10,000 jobs, Prime Minister Rudd, and the Labor Government have something to celebrate about on their 2-year anniversary.

We expect job growth to continue in the long-term. Project such as Gorgon in Western Australia will continue to increase the number of jobs. According to the ACIL Tasman report, an additional 10,000 direct and indirect jobs are on the horizon, although it is believed that not all these jobs will go to Australians.

Other indicators paint a rosy picture for the Australian labor markets. We expect that unemployment, which was at 5.8% in October, may rise, but will curb at 6.4% in 2010, which is far lower than what the market expected peak of 9.1% earlier.

The recent job growth is accredited to the Labor Government’s swift action to provide liquidity to the market through the stimulus packages. Liquidity in an economy creates jobs and spurs growth, which Australia is currently witnessing. With government borrowing expected to peak at 18% as a share of GDP, the Australian economy’s fundamentals put her in a favorable position to continue its stimulus injection. However there are strong indicators that a tightening of the monetary policy is on the horizon. If the Labor Government starts curtailing the fiscal stimulus, it will have serious effects on the job markets, and will put Australia in a vulnerable situation which might lead a slowdown in recruitment.

Slower hiring is becoming a stark reality given recent events in the currency markets. The Australian dollar rose to a 15-month high of US$0.9369 and interbank future slid as the market has priced in an almost certain chance of an interest rate hike in December. This means that the cash rate will be at 3.75%, indicating that there will be a tightening of monetary policy, which all means that the fiscal stimulus will be curtailed. The Reserve Bank of Australia must take into account that the current job market has not yet reached a point of stability where it can grow in the absence of a fiscal stimulus.

Think about it yourself for a moment: if you become tight-fisted at this stage when the job market has not yet established a floor, and If today you are at 5.8% unemployment, and you beating your job creation expectation because of the stimulus, then where do you think these numbers will go if you become fiscally conservative?

The challenge for the Reserve Bank of Australia and the Labor Government is to ensure that recent successes in the job market are not eroded by a miscalculated tightening of monetary policy. We would like to maintain our rating of A- for the job market in the short term.

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