Rate rise uncertain as unemployment remains at 4.9%

New figures reveal the unemployment rate remained at 4.9% in April but the economy lost more than 22,000 jobs, blurring predictions of the next interest rate rise.

According to the Australian Bureau of Statistics, total unemployment fell by a seasonally adjusted 22,100 to 11.437 in April, with a substantial loss in full-time jobs offset by an increase in part-time work.

Full-time employment fell by 49,100 to 8.057 million in April, while part-time employment was up 26,900 to 3.380 million.

Meanwhile, the participation rate was 65.5%, slightly down from an unrevised 65.8% in March, although economists had expected it to remain unchanged.

HSBC chief economist Paul Bloxham says despite the figures, the unemployment rate is continuing on its downward trend, arguing this will put pressure on the RBA to keep rates on hold.

“We stand by our sense that the Reserve Bank of Australia is ready to move, but we don’t think that it’s going to happen this month – we still think July or August are more likely,” Bloxham says.

According to a Westpac report, the weakness in job figures is centred on the eastern seaboard, particularly in NSW and Victoria, but the overall unemployment rate will continue to decline.

“For now, job ads and business surveys – plus the recovery in economic activity in the second quarter – all point to an ongoing robust labour market and a falling unemployment rate,” Westpac said in its report.

“As such, the RBA would be maintaining its tightening bias. However, we would expect that the bank will be, just like ourselves, closely watching the labour force numbers to see if there is something a bit different going on this time in the labour market.”

“Next week, we get an update on wages and, given the current low rate of productivity in the Australian economy, it is something the RBA will be watching closely for a lead on the momentum in underlying inflation.”

Announcing the 2011 Federal budget earlier this week, the Government revealed that $3 billion will be spent over the next six years to tackle Australia’s skill shortage and encourage the long-term unemployed back to work, amid the declining unemployment rate.

Commenting on the budget, Commonwealth Bank chief economist Michael Blythe said he was impressed with the new policy measures designed to lift labour force participation.

“New policy measures announced have a heavy labour force focus and the associated boost to skills will help ease pressures as the labour market tightens,” Blythe says.

McIntyre says it will be interesting to see whether the budget has done enough to take the pressure off interest rates.