Weak jobs growth reignites rate cut expectations, but SMEs fear missing out

Official figures showing that employment grew by just 115,000 in 2011 and slipped in December has heightened concerns about Australia’s job outlook, and expectations of a rate cut next month.

Australian Bureau of Statistics numbers released yesterday showed the number of people employed decreased by 29,300 to 11.42 million in December – underperforming analyst expectations of a 10,000 rise in the busy month for retail.

The data firmed up expectations the Reserve Bank will cut rates for the third straight month in February, taking the official cash rate to 4%.

But there are concerns that the banks’ rising wholesale costs, and moves to decouple the Reserve Bank’s interest rate decisions with the banks’ decisions, will mean that rates will not be passed on in full.

Peter Strong, executive director of the Council of the Small Business of Australia, says he has “no confidence” further cuts will flow through to business lending, given tardiness in doing so previously and the banks’ warnings that new international banking regulations are driving up their cost of business.

“What we need is greater cooperation between business and the banks, because we need to understand each other’s situation,” Strong says.

“We’re both being impacted by the global economic conditions.”

AMP Capital Investors head of investment strategy and chief economist Shane Oliver says he has mixed views on the job outlook for 2012.

“I think jobs will be lost and unemployment will head higher (to maybe 6%), but providing the RBA continues to ease then I think it will be contained and by later this year the jobs market should be starting to improve,” Oliver told SmartCompany this morning.

Announcing that the unemployment rate remained steady at 5.2%, the ABS said the decrease in employment was driven by a drop in part-time employment, down 53,700 people to 3.37 million, and was offset by an increase in full-time employment, up 24,500 people to 8.05 million.

“The decrease in seasonally adjusted part-time employment was driven by weaker than usual growth during the December period, which was particularly noticeable for women aged 15 to 24,” it said.

Westpac says it was surprised by the size of the fall, even taking into account the wet summer, poor domestic tourism demand and weak retail sales leading up to the Christmas sales.

It expects the job market to “soften”, particularly in New South Wales and Victoria, tipping the national unemployment rate to peak at 5.75% by the middle of the year.