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Labour trends ‘not dramatic enough’ to force RBA’s hand

The Reserve Bank will not be tempted to cut the cash rate in August, despite “significant spare capacity” remaining in the labour market, according to AMP Capital. 

According to the latest Labour Force data from the Australian Bureau of Statics (ABS), the unemployment rate remained stable at 5.2 per cent in June, which has marked the third consecutive month in which no improvement has been recorded. 

Trends in the labour market have been placed front and centre of the economic debate in recent months, with the Reserve Bank of Australia (RBA) claiming that its recent cuts to the cash rate were primarily designed to “support the necessary growth in employment”.

However, reflecting on the latest ABS data, senior economist at AMP Capital Shane Oliver observed: “The rise in unemployment from 4.9 per cent earlier this year and continuing high underemployment indicate that significant spare capacity remains in the labour market and in the economy.”

Mr Oliver said that stimulus provided by recent political and economic developments would be reflected in labour market figures in the coming months but added that they would not be enough to help the RBA achieve its targets.

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“While the rate cuts of June and July, the tax refunds for low and middle-income earners, the post-election boost to confidence and strong infrastructure investment should help limit the rise in unemployment to around 5.5 per cent, they are unlikely to be enough to get unemployment back down to the RBA’s May forecast for unemployment to be at 5 per cent by year end, let alone [4.5 per cent],” he said.

However, the AMP economist said that the latest labour market data is “not dramatic enough” to prompt the RBA to lower the cash rate for the third consecutive month but expects further adjustments later this year.

“We remain of the view that it will still have to cut rates further later this year, ultimately taking the cash rate down to 0.5 per cent early next year,” he concluded.

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>According to the latest Labour Force data from the Australian Bureau of Statics (ABS), the unemployment rate remained stable at 5.2 per cent in June, which has marked the third consecutive month in which no improvement has been recorded. 

Trends in the labour market have been placed front and centre of the economic debate in recent months, with the Reserve Bank of Australia (RBA) claiming that its recent cuts to the cash rate were primarily designed to “support the necessary growth in employment”.

However, reflecting on the latest ABS data, senior economist at AMP Capital Shane Oliver observed: “The rise in unemployment from 4.9 per cent earlier this year and continuing high underemployment indicate that significant spare capacity remains in the labour market and in the economy.”

Mr Oliver said that stimulus provided by recent political and economic developments would be reflected in labour market figures in the coming months but added that they would not be enough to help the RBA achieve its targets.

“While the rate cuts of June and July, the tax refunds for low and middle-income earners, the post-election boost to confidence and strong infrastructure investment should help limit the rise in unemployment to around 5.5 per cent, they are unlikely to be enough to get unemployment back down to the RBA’s May forecast for unemployment to be at 5 per cent by year end, let alone [4.5 per cent],” he said.

However, the AMP economist said that the latest labour market data is “not dramatic enough” to prompt the RBA to lower the cash rate for the third consecutive month but expects further adjustments later this year.

“We remain of the view that it will still have to cut rates further later this year, ultimately taking the cash rate down to 0.5 per cent early next year,” he concluded.

[Related: RBA banks on double-pronged mortgage boost]

Labour trends ‘not dramatic enough’ to force RBA’s hand
RBA
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