Unemployment jumps - and the dollar falls

Friday, 8 August 2014  Media Alerts

“This was certainly a big jump, and somewhat unexpected,” said UNSW Business School’s Professor Richard Holden, in relation to yesterday’s unemployment figure of 6.4%.

A professor of economics, he has been studying the unemployment figures, and said “this large jump has caught many market participants and forecasters by surprise. The fall in job growth is particularly concerning.”

Unemployment has jumped to the highest level in more than 10 years, following a surprise fall in jobs growth. The jobless rate rose to a seasonally adjusted 6.4 per cent from 6 per cent in June, its highest point since August 2002.

The Australian dollar plunged after the unemployment rate hit a 12 year high, falling to 92 US cents in afternoon trade.

“This is not a surprise - speculation is mounting on interest rate rises in the United States sooner rather than later, rather than a cut here in Australia,” said Professor Holden.

“However the rise in unemployment will put additional pressure on the RBA to cut interest rates, but they are also focused on the high Australian dollar, housing prices and the inflation rate. The RBA has only one tool, and cannot easily target four things at once. This underlies the need for a strong and stable underlying economy; something that has been jeopardised by gridlock in Canberra, and uncertainty from the government surrounding budget measures and fiscal policy generally.”

In the lead up to last year’s federal election, the government promised two million new jobs within 10 years, with a focus was on a five pillar economy of manufacturing, agriculture, services, education and research, and mining.

Professor Holden has responded that it is normally a bad idea for the government to try and pick wining sectors. While the government can try and help, what it should aim for is to provide a stable and hospitable environment, and basically “get out of the way” of job creators.”

“Now it is always good if the government plays an important role in internalising all sorts of externalities. But it certainly does not mean favouring one industry over another.”

For further comment call Richard Holden on 02 9385 4700, 0409 446 296 or Email richard.holden@unsw.edu.au.

Media contact

Julian Lorkin  02 9385 9887