Down Under: Economists Surprised by Jump in Australian Unemployment Rate

On February 3, the Reserve Bank of Australia cut interest rates to a record low 2.25%.

Did economists think the RBA had a reason for that cut or did they they think the RBA was playing darts and landed on a "rate cut" square?

The latter would make sense, because the Sydney Morning Herald notes a Surprise Jump in Unemployment to 6.4 Percent.

The Australian Bureau of Statistics said on Thursday that the number of people employed fell by 12,200 to 11.668 million in January, against market expectations of a fall of 5,000.

This took the official unemployment rate to 6.4 per cent from 6.1 per cent in December, while the participation rate remained steady at 64.8 per cent of the population.

The figures were well below expectations, and the Australian dollar plunged more than half a US cent, to US76.63 cents.

The Reserve Bank of Australia highlighted its concerns about continuing softness in the jobs market last week, when it cut the cash rate for the first time in 18 months.

Thursday's result is likely to ramp up speculation about a second cut within months.

"While the market had expected some weakening in labour force conditions in January after the surprisingly good figures in December, the increase in the unemployment rate to 6.4 per cent was worse than feared," said ANZ's co-head of Australian economics Riki Polygenis.

"This is a new peak for the unemployment rate, with the previous peak at 6.3 per cent in October and November following revisions.

CommSec chief economist Craig James agreed.

"On the basis of the continued softness of the job market, there seems no barrier to the Reserve Bank cutting interest rates again at the March board meeting," he said.

"Simply, Australia is growing at a far slower rate than its potential."

Potential Growth

Why does anyone place any faith in central bank or economists' estimates of "potential growth".

I suggest it is impossible to accurately come up with such a number. But given they have, I will take the "under" for quite some time.

For more on the misery down under, please see Australia Coming Apart at the Seams.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com