Rates on hold but jobs lift may see 2005 rises
A strong job market pushing unemployment to a 27-year low is a reminder that the economy remains strong despite the recent cries of woe. Variable interest rates will complete a calendar year unchanged after the Reserve Bank board left rates on hold at its final meeting for the year this week but 2005 may still hold higher rates in store.
Given the conflicting economic signals that have emerged over the last month or two, interest rates are likely to remain on hold in the first couple of months or so of the New Year. But the fall in unemployment to 5.2 per cent, the creation of 24,500 new jobs and the promise of more to come in the forward-looking ANZ job vacancies index suggests the domestic economy remains robust. This adds more weight to RateWatch's earlier warning that the recent predictions of a faltering economy may be overdone.
A lot has been made of the sluggishness in the economy in the September quarter, confirmed in the recent GDP numbers released last week. But the later evidence from October and November suggests it may have been more of a temporary lull, rather than the start of a longer decline.
The latest trade deficit figures show the export sector certainly remains a concern. Retail sales may be off the boil but consumer confidence remains high and people are still spending. Personal borrowing on credit cards and overdrafts rose 1.8 per cent in October to $6.5 billion, the second consecutive monthly rise following four months of falls.
Borrowing for housing continues to slow but is still settling back from the red hot boom levels and couldn't yet be described as weak. Borrowing by owner-occupiers fell a modest 0.4 per cent in October. Loans for investors dropped 8 per cent, more than reversing the 4.8 per cent rise recorded the previous month. Business borrowing fell 8.7 per cent to $25.4 billion.