Strong jobs data won't stop rate cut

AN unexpected surge in the number of full-time employees last month is unlikely to stand in the way of an interest rate cut, economists say. New...

Strong jobs data won't stop rate cut

AN unexpected surge in the number of full-time employees last month is unlikely to stand in the way of an interest rate cut, economists say.

New government data showed full-time employment jumped by a seasonally adjusted 53,700 in July, a surprising result given a raft of recent data showing the economy is slowing rapidly.

However, economists doubt this will deter the Reserve Bank of Australia (RBA) from cutting its key cash rate - possibly as early as next month - saying the jobs surge could be the result of a smaller number of people being polled for the employment survey.

The Australian Bureau of Statistics (ABS) has cut its labour force sample by 24 per cent as the result of an enforced cost-cutting exercise in the Federal Budget.

"We would caution about reading too much into July's labour force result. Some of this increase could be unwound in future months as the slowdown spreads,'' TD Securities senior strategist Joshua Williamson said.

"Don't forget that August's employment number has gotten off to a bad start with news that Starbucks will close over 60 Australian stores, while Qantas has announced plans to layoff 1500 workers.''

The total number of people employed in July rose by a seasonally-adjusted 10,900 with part-time jobs having dropped 42,800, the ABS said.

The jobless rate was 4.3 per cent, unchanged for the fourth straight month after revisions. Economists had expected total employment to rise by a slim 1300.

Acting Prime Minister Julia Gillard welcomed the jobs result at a time when the economy confronts the most difficult global conditions in at least a quarter of a century.

"While employment growth is easing as a result of global conditions and eight interest rate rises in just over three years, the fundamentals of the economy remain strong,'' Ms Gillard, the employment minister, said in statement.

"As we've been saying for some time, Australia is not immune from the global slowdown, but we're better placed than other nations to withstand it.''

However, Acting Opposition Leader Julie Bishop said the job market's encouraging resilience could not be taken for granted.

"It is vital that (Prime Minister) Kevin Rudd and (Treasurer) Wayne Swan stop talking down the economy and driving down business and consumer confidence,'' Ms Bishop said in a statement.

"This has been reflected in recent falls in retail turnover and housing finance commitments, slowing residential building approvals and slowing demand for credit.''

RBA Governor Glenn Stevens indicated this week that a rate cut is on the agenda in coming months against the backdrop of slowing domestic demand.

Despite receiving an initial jolt from the stronger than expected jobs numbers, financial markets are still pricing in a quarter percentage point cut in the 7.25 per cent cash rate in September.

They are also predicting at least one further move before Christmas.

"The economy has softened and the scene is still set for a rate cut, and today's data does not change that outlook for monetary policy,'' National Australia Bank senior economist David de Garis said.

The big question mark for borrowers is whether commercial banks will quickly pass on any official rate cut to its customers.

"I've said very clearly that as the banks fired up the official cash rate, they should follow down any changes in the official cash rate,'' Mr Swan told reporters in Melbourne.