Australian Un-employment Breaks Ranks. 5% by Year End Forecast.

Australian Un-employment just snapped from 3.5% to 3.7% for the month of April.

Well above expectations of 3.5%.

Australian Un-employment now turning back up.

This is a loud crack in terms of the economic forest. It does not mean the tree has fallen as yet, but a recession may not be far away.

As immigration sky rockets and temporary workers again flood the nation, this is only the beginning of a new worsening trend in employment that will surprise many in both pace and degree.

Temporary work saw strong gains while permanent work dropped sharply. Participation remained stable, edging slightly lower. This number was all about there being far more people who want jobs, having trouble finding them.

Australia, only appeared to have full employment in the true sense of the term, as what really happened was that the gap left through Covid in temporary workers and immigration, was actually filled by many relatively long term un-employed. It is likely this group is again being displaced as more and more flights arrive with fresh eyes for existing jobs.

Australia’s un-employment is therefore likely to skyrocket from these seeming full employment levels. One less swallow does not a winter make, but this is a significant shift which has surprised many. Is it the start of a trend? Most certainly.

Un-employment will be rising and the Reserve Bank will be raising rates.

This is the quandary the nation has got itself into. All those who applauded the RBA’s big mistake of keeping rates near zero crisis levels for a year too long, may now well end up paying quite the price as the RBA over-hikes for some time yet. Mistake number two.

There has been no over-the-horizon vision to discern the return to more normal circumstances ahead of time. Instead, the RBA chooses to languish in backward looking data, being intent on historical now inappropriate policy responses.

The RBA will be hiking rates not only due to inflation, but we are now seeing, as forecast here, clear signs of a developing wages/prices spiral beginning to take hold.

As is the nature of stock market sentiment of late, equities may enjoy momentary strength on the basis that this data works against RBA rate hikes. However, it is likely the RBA will see this as just a necessary, and so far modest outcome of their tightening plan.

Two forecasts here.

The RBA will continue to hike rates regardless of the un-employment level and despite playing employment significant lip service at times.

Australia’s un-employment rate is only just beginning to turn up out of the artificial Covid period, and is likely on a trajectory to 4.5% or 5% by year end.

These two factors are unlikely to create an equity market friendly environment in the second half of the year.

Clifford BennettACY Securities Chief Economist

The view expressed within this document are solely that of Clifford Bennett’s and do not represent the views of ACY Securities.

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