Australia Sees Strong Jobs Growth but Soft Inflation Remains an Issue

Surprisingly the job markets in a number of countries are showing strong results despite moderate to modest GDP. U.S. jobs in October notched up a 271k gain, which was followed by a stronger than expected showing in Canada. The most surprising economy, given its proximity to China, is the Australian economy, which is set to have its best year of job growth since 2010.

Australia employment surged 58.6k in October, much better than expected after the 5.1k drop in September. The unemployment rate fell to 5.9% in October from 6.2% in September. Home loans rose 2.0% in September after the 1.5% month over month gain in August. Similar to Canada, low rates are boosting housing in many regions. Full-time jobs rose by 40,000; part-time employment increased by 18,600, which shows that labour slack is tightening.

The consumer is also alive and well and strong job gains are driving up consumer confidence. Retail sales rose 0.4% month over month in September, matching the gain in August after slipping 0.1% in July. Sales volumes grew 0.6% in Q3 quarter over quarter after a revised 0.7% gain in Q2. Unfortunately prices are falling in most areas, the Australia Consumer Price Index increased at 1.5% year over year rate, unchanged from Q2.

The global decline in commodity prices is generating a dilemma for the Reserve Bank of Australia. The Bank of Canada is facing the same issues. While housing and employment are solid, commodity related industries are facing headwinds. Inflation is falling, which might require further stimulus which could in turn drive wages higher.

Australia is facing the effects of decreasing commodity prices which is effecting their exports. The central bank, which cut rates twice this year, is attempting to stimulate consumer confidence to spur spending and encourage business investment. Consumer sentiment rose 3.9% this month even as business confidence remains subdued.

Australia still faces the issue that its largest trading partners continues to experience lackluster import growth. Chinese exports fell a much worse than expected 6.9% year over year while imports plunged a more severe than anticipated 18.8% year over year. China’s Q3 GDP grew 6.9% year over year following the 7.0% year over year pace in Q2. Price inflation in China continues to drop. October CPI slowed to a 1.3% year over year pace from 1.6% year over year in September. The core rate fell to a 1.5% year over year clip from 1.6%. October PPI was unchanged at -5.9% for a 3rd straight month, and remained in negative territory for a record 44 consecutive months.

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