Peter Jolly is head of research at NAB. He's a super experienced, smart market economist. Here is his take on today's jobs data (I don't fully agree with his rates views, but I completely agree with his take on the data):
Today’s good March employment number – unemployment rate steady at 5.2% and +44k jobs - was mostly a reminder that despite the negative hype, growth is far from collapsing in Australia.
Further, if growth was below trend around the turn of the year (as the RBA suggested in their April statement) it wasn’t by much given the unemployment rate has been basically steady at 5.2% for the past six months.
Tuesday’s NAB March business survey pointed to the same conclusion, with the business conditions around trend – see chart across. For all that, there was nothing in today’s labour force report to stop the RBA cutting on May 1 – we did get 44k jobs in March, but its unlikely to be the start of a sustained uptrend in jobs growth and is more likely a statistical pay-back for February’s weak -15k.
What might still stop a May 1 cut is a very outsized increase in underlying inflation on April 24 – this is unlikely though given most inflation partials were benign in Q1 and point to +0.5 to +0.6% for underlying inflation.
What today’s data has done it cast doubts on rate cuts beyond May 1. If we are to get further cuts beyond 4%, the unemployment rate will need to be nearer 5½% than the current 5.2% - Spain blowing up would do it also. That is still the risk, but it may not happen in a hurry. At this stage, the chances of a follow-up June cut seem fairly low to me. Market pricing for a 1 May cut has been pared to 80% today, after reaching more than 100% earlier this week.
