Rates may rise in late 2001
This week has thrown up the strongest evidence yet that interest rates have bottomed and that the next move in official rates will be up.
Resurgent economic growth, rising approvals for new-home construction, signs of resilience in employment and a big reduction in inventories of unsold goods comes against a background of ongoing consumer confidence. These are unequivocal signs of recovery.
The surprise 1.1 per cent GDP figure for the March quarter reveals economic growth being restored to healthy levels after the negative December figure. This bounce back was happening at the same time as the RBA was cutting rates and if a return to healthy growth is confirmed in the June quarter GDP figures (out in early September) then we will find ourselves with an overly expansionary monetary policy and the threat of inflation re-emerging.
It is possible we will see variable interest rates rising before the end of 2001.
Housing loan finance commitments rose just 0.4 per cent in April but underlying this number was a 6.8 per cent jump in commitments for new homes – more evidence of recovery in the key home construction industry which dragged the economy down late last year.
The negatives lie in the retarding effect of the HIH collapse on the construction industry, rising unemployment, and the continuing questions marks over the US economy.
The May employment figures, unemployment up 0.1 to 6.9 percent, employment down 4.1 per cent, show the job market continuing to weaken. But this is consistent with the lag with which the market follows changes in the economy as whole and there are signs of resilience. Unemployment will likely worsen further but the ANZ job ads survey which saw a rise in job vacancies in May offers signs of hope.