Analysis: Jobs, Housing Sentiment May Give RBA Enough Reasons to Hold in Feb

• Published on
• 23 Jan 2020, 01:10 PM

By Sophia Rodrigues

Australia’s labor force report for December was an all-round positive one, and comes against the backdrop of improving housing market sentiment. This, together with a largely stable Australian dollar, could make enough arguments for the Reserve Bank of Australia to hold the cash rate in February while retaining a strong easing bias.

Money market pared bets for a 25bps cut in the cash rate following the jobs report from around 60% to 30%.  The Australian dollar rose 0.4% but remained below $0.69, at $0.6870.

Data published by the Australian Bureau of Statistics Thursday showed the jobless rate fell to 5.1% in December from 5.2%, and to a rate last seen in March. The rate has now fallen for three straight months from 5.3% in October.

The details in the report were mostly positive, but the biggest positive was rise in monthly hours worked. It rose 8.2 million hours m/m and on a y/y basis it rose 2.3%, the largest gain since March.

To put into context, the rise of 8.2 million hours was the third-largest in 2019 when monthly movements ranged from -0.3 to +11.1.

What is significant is that the big gain in hours occurred when the rise in employment was entirely due to increase in part-time work. Part-time employment rose 29,200 while full-time employment fell 300 in December. In the past, big rise in monthly hours usually happened when full-time employment rose.

The latest increase suggests that rise in part-time employment is not necessarily a negative because people worked more hours, and therefore earned more income.

RBA CAN IGNORE CONSUMER SENTIMENT FALL

One reason supporting RBA rate cut in February is the drop in consumer confidence due to ongoing bushfires in Australia. However, alongside a drop in overall consumer sentiment, there has been a strong rise in housing-related sentiment.

The RBA may choose to put more emphasis on rise in housing-related sentiment because that is more easily converted into rise in housing market activity, which is one way easy monetary policy works.

Westpac-Melbourne Institute’s Index of Consumer Sentiment, published Wednesday, showed “time to buy a dwelling” index rose 5.7% in January to 118.8, and close to the long-run average of 120.

House Price Expectations index rose 8.1% to 151.58, up 58% y/y. Westpac noted that in previous price cycles the biggest rise was 26.7%.  Both the indexes indicate the current period of house price rises is unlikely to end in the near term, Westpac said.

Prior to the RBA’s board meeting on February 4 is consumer price index inflation data for the December quarter. While there is always a possibility that the data could surprise to the downside and make a case for rate cut, it seem less likely.

Based on the labor force report and developments in the housing market, and a largely steady exchange rate, the arguments now add up for a RBA pause in February. The RBA can ignore fall in consumer sentiment, for now.

--Contact: sophia@centralbankintel.com