Employment figures slightly stronger than expected, underscoring robustness of economy

RBA decides to maintain interest rates at 4.75 percent with a markedly similar statement to after its March meeting

EVENTS:

The Australian Bureau of Statistics announced on Thursday morning that Australia’s unemployment rate fell to 4.9 percent in March from 5.0 percent in February. Total employment increased by a seasonally adjusted 37,800 to 11.457 million. Market analysts had expected 20,000 jobs to be added last month and for the unemployment rate to remain at five percent.

The employment data follows on the heels of the RBA’s decision on Tuesday to keep interest rates on hold at 4.75 percent for a fifth consecutive month. The RBA’s April statement was very similar to its statement last month. The similarity of the last two RBA statements reflect the Bank’s confidence that current interest rate settings are appropriate for current economic conditions.

IMPACTS:

The release of the employment data saw the AUD soar to yet another 29 year high against the USD, reaching $1.0508 cents in late trading on Thursday. The AUD is currently trading at the top of our expected range of $0.9900-1.0500. We expect the AUD to run out of momentum and be capped at $1.0500.

Whilst the employment data was slightly better than expected, the RBA signalled that growth in employment is likely to moderate in the short-term. CPI inflation data due towards the end of the month should offer a clearer indication of the direction in which the RBA will travel with interest rates. Any significant shift in inflation could recalibrate the Bank’s thinking on timeframes for potential rate increases.

It should be noted, however, that the RBA has already acknowledged that the reconstruction efforts in Queensland could see short-term inflationary pressures. These pressures will continue to be contextualised by the RBA as it assesses the national inflationary environment.

CONSIDERATIONS:

The AUD has been driven higher recently on the back of M&A flows and a weakening of the JPY. This had led to a renewed focus on the carry trade, with the AUD appreciating almost 20 percent against the JPY since the earthquake and tsunami on 11 March.

Thus far, the currency markets have ignored the previous risk aversion events this week, including the Portuguese Government’s request for an economic bailout from the EU and China increasing its interest rates by 0.25 percent. These events have passed without any significant movement in the AUD.

With the AUD trading up to $1.05, the dollar is in dangerously overbought territory. Profit taking could see the AUD drop back to $1.035 as investors move to take some risk off the table. Against this backdrop, businesses that trade overseas, especially importers, need to ensure that they properly cover their currency exposure for when the AUD inevitably runs out of momentum.

There has been increased speculation that the US Federal Reserve could raise interest rates this year to keep inflation in check. Federal Reserve Bank of Richmond President and former voting member of the Federal Open Market Committee, Jeffrey Lacker, noted this week that inflationary pressure has increased appreciably in the last six months. Any increase in interest rates in the US would reduce the gap in interest rates between the two countries and put downward pressure on the AUD.

One additional issue of interest is the very real prospect of a shutdown of the US Federal Government triggered by a budgetary dispute between President Obama and the Republican Congress. A shutdown would result in a freeze of many Federally funded government services and the Federal payroll. The last US Federal Government shutdown in 1995 had negative ramifications on all sectors of the US economy. The ramifications of another shutdown could be impactful on the USD.

The annual State of the Industry 2010 report details the pressure the sector has come under in the last six years, underlining the $4.5 billion surplus in 2004/05 to a $1.8 billion deficit in 2009/10.

“This alarming result shows food and grocery manufacturing—which employs 288,000 people—is now a net importer of food and grocery products which impacts industry’s growth and competitiveness,” said AFGC chief executive Kate Carnell.

“Industry is still a major exporter but imports are rising fast, eroding the trade surplus historically enjoyed by the industry. To protect Australia’s food supply and overcome this challenge, there must be a ‘whole-of-government’ national strategy to ensure food and grocery manufacturing’s long-term growth, increase export earnings and boost competitiveness.”

The report also recognised the importance of protecting the future needs of industry in terms of job growth and investment as well as meeting the significant food supply needs into the future.

“The industry employs more than three percent of all employed people in Australia but lost 3,400 jobs since 2006/07. The sector pays wages of more than $13 billion a year,” said Carnell. “There are also real challenges facing the industry including the increasing cost of energy, availability of water, the surging Australian dollar and the availability and cost of good employees.”

Download the full report State of the Industry 2010: Essential Facts and Figures at www.afgc.org.au.

Seven from 10 businesses surveyed not only believed in the recovery but even more were planning to expand their businesses, with two-thirds looking to hire more staff.

Many were also preparing for a skills shortage with 40 percent using skilled visa applications, an increase on 30 percent in 2009. Employers also looked to upskilling existing workers rather than hiring new people, noted KPMG’s head of private enterprise Marco Di Sebastiano.

Last year’s results were comparatively dire, with just two percent of non-listed firms in Australia holding a positive economic view.

“Very few employers are taking a ‘Blue Ocean’ approach to their HR strategies and as a result, their SOS calls will not be responded to, with potentially devastating results for the long term success and financial viability of their operations,” said Gould. “This situation is likely to worsen as the Australian and International economies gain confidence and momentum.”

According to the 2009 Manpower Australia Annual Talent Shortage Survey, 49 percent of Australian employers struggled to fill positions despite the economic crisis. In the Asia-Pacific, this figure was more than 30 percent. Research by awbt confirmed this.

Globally, companies now regard talent recruitment as a priority and as a result, many businesses are prepared to recruit appropriate candidates from overseas or are prepared to move part or all of their operations to countries that can provide a supply of skilled and talented employees, said Gould.

“As a result of globalisation, ageing workforces and the ‘War for Talent’, we are experiencing seismic shifts in the business landscape that requires new and innovative approaches by businesses to employment, retention and professional/personal development to attract and retain competent staff,” he said.

“The competitive forces impacting on talent will require organisations to implement a Centre of Excellence framework to provide the ‘business driver’ for innovation and growth.

“How good an organisation is at attracting, managing and developing the skills and expertise of its human resource assets will become the crucial factor that determines the winners and losers in terms of marketplace competitive advantage.”

ACTU secretary Jeff Lawrence said “it is essential that low-paid workers share fairly in the economic recovery after shouldering the burden of last year’s downturn”. Millions of Australians were affected by a wage freeze over the past 18 months, while executive salaries and profits rose, according to Lawrence. The pay rise would affect workers in industries such as cleaning, hospitality, retail, transport, childcare and aged care.

Lawrence is optimistic that the submission will succeed, telling reporters gathered outside the hearing this morning that he was confident of its outcome. “We’re very hopeful based on the nature of the process, based upon the legislation, of course which is different, about getting a result favourable to our claim.”

The hearing is the first to go before Fair Work Australia in Melbourne, a new wage-setting mechanism established to replace the Fair Pay Commission set up under WorkChoices during the term of the Howard government.

Brown attacked The Conservative Party, which plans to campaign with ‘Vote for Change’ at the next general election, by saying their policies have remained the same for a century.

“They would make the wrong changes at the wrong time for the wrong reasons to benefit the wrong people,” said Brown. “And let us be in no doubt. They are not the party of change for families, but the party that would short-change families.”

He pointed out that the savings of ordinary families had been protected “by a decision made by a Labour Government on behalf of and with the support of the British people – and in the face of the ideological opposition of the Conservative Party”.

The beleaguered PM said he will campaign on a platform of employment.

A recent deal with China, which is expected to create 7,000 jobs in central Queensland, is the latest source of benefit to the state’s economy, but could drain workers from other areas and industries with the lure of better salaries in the mining sector.

Porter said employers should be prepared to compete for talent. “It is not just about the great money. It’s obviously important to put the whole package together, which is also family friendly, rostering, good work environment, access to ongoing training and services,” she said.

The chamber fears Mackay could lose workers from the town.

US President Barack Obama signed off on the $US787 billion stimulus package in February 2009, but the jobless rate still hit double digits during the year. He recently called for further measures to quell rising unemployment.

However, the economic outlook remains uncertain, said spokesperson Christina Romer, head of Obama’s Council of Economic Advisers: “Where are we going to be a year from now? Do we see consumer confidence come back? Do we see firms starting to invest again?”

Romer indicated she expected employment to return by the second quarter of this year, and that by the end of the year the stimulus would have saved 3.5 million jobs, but stated that there needed to be “targeted action” to assist further job creation.

The latest US$155 billion jobs package was approved by the House of Representatives last month, and the Senate will preside over new job-related legislation in the next few weeks.

Gould will be keynote speaker at Austrade’s ‘Blue Ocean for High Performing Leaders in Turbulent Times’ seminar in Kuala Lumpur, Malaysia later this month, speaking on the benefits of the global economic downturn.

“I am confident that the recent economic downturn will prove to be the basis of new era of economic growth, stimulation, innovation, creativity and entrepreneurial success,” said Gould.

“Regardless of the unemployment rates, demand for competent employees will be the single greatest challenge for businesses in the post-GFC era. This shortage will result in business owners investing significantly in retaining and developing the skills of their existing workforces.”

Globalisation and the increasing number of free trade agreements has led to a more mobile workforce, which means businesses will need to deal with a new generation of workers with different values and needs than those of their predecessors.

New businesses “will constantly challenge and discard outdated established conventions and values” so to compete, established businesses must now look to identify and develop the skills of future company managers and leaders to “provide the crucial link between the internal resources and the external objectives,” he said.

Singapore topped the Doing Business 2010 list, with New Zealand and Hong Kong rounding out the top three. The Central African Republic ranked last, with Greece at 109 the lowest ranked developed country.

The survey also saw Australia top the list for business-friendly regulation with regard to our labour laws. This includes taking into account the ease of hiring and firing, flexibility in working hours and the cost of making workers redundant.

However, Australia could improve on its process to obtain building permits, which takes a business owner through 16 procedures and takes on average 221 days. By contrast, in Hong Kong it takes seven procedures and 67 days.

Doing Business 2010 took into account 10 measures such as ease of starting a business, obtaining credit and ability to enforce contracts, in more than 180 countries.