Jobs breather does little to ease rates threat

Pressure for an increase in interest rates has perhaps eased slightly following the release of the June jobs figures showing a slight increase in unemployment and a decrease in full-time jobs.

However, there is nothing much in this latest monthly employment result to suggest the jobs boom is coming to an end, or that the heat is off inflation. After a strong run of full-time job growth in recent months, there was bound to be some form of correction in a set of figures that is notoriously volatile from month to month anyway.

Unemployment edged up 0.1 percentage point to 4.3 per cent, but this is really accounted for in a rise in the participation rate as people are drawn back into the workforce by the attractive job climate. Part-time jobs grew strongly, offsetting the full-time decrease.

The outlook for jobs growth still looks healthy in the second half of 2007, especially when combined with high consumer confidence (despite a slight fall in July) and ongoing growth in lending finance. Business lending grew 1.1 per cent in May, reversing a fall in April and adding to healthy overall growth over the past year. Personal credit grew 2.2 per cent and housing lending rose a modest 0.2 per cent.

All in all, the pointers suggesting continuing growth in the economy are little changed. The question is whether this leads to a squeeze that leads to wage and price inflation, and the need for the Reserve Bank to raise interest rates. That risk is certainly there and the release of the June quarter inflation figures in two weeks is critical for the ‘if and when' questions about a rise in interest rates.

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