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Westpac Predict 0.25%pa Rise February and 0.50%pa in 2nd Qtr

Dec ANZ job ads
• Total job ads – covering both newspaper ads and those posted
on internet sites – rose 6% in December, extending their rally
since July to +19.1%. Ads have clearly turned the corner but
remain well below their levels of a year ago (total ads down
22.6%yr). Hiring is on a strong uptrend though, with ads rising at
a 30%+ annual pace over the last five months.
• The June cycle low now looks to be confirmed and is consistent
with a trough in annual jobs growth in January 2010. However,
official employment data suggest trend employment has already
turned, both earlier and at a more resilient level than job ads
figures had previously implied.
Nov housing finance
• No surprise that housing finance recorded a solid decline
in November as the additional bonus under the Federal
Government's First Home Buyer (FHB) scheme was phased out
between October and December. Overall housing finance to
owner-occupiers declined by 5.6% in November, a drop that was
explained entirely by a 20% fall in lending to FHBs.
• The Upgrader segment was resilient, with finance unchanged in
the month. While, there was some strengthening of Investors,
with the value of finance rising by 2.0%.
• Even with the 5.6% drop in November, owner-occupier finance
remains at historically high levels.
• Demand for housing has surged over the last year, reflecting the
very favourable combination of historically low interest rates,
government incentives, strong population growth and pent-up
demand for housing stock.
• RBA interest rate rises will act as a headwind for housing finance
in coming months. However, the housing sector is likely to gain
a second wind during the second half of 2010, if – as we expect
– the RBA keeps the cash rate steady for some time at around
• Strong population growth and pent-up demand will remain
supportive. Upgraders will be encouraged by a strengthening
labour market and Investors are expected to return in greater
numbers, in response to relatively high rents and rising house
Dec employment and unemployment
• The December labour force data surprised on the upside for
the fourth consecutive month, while a lower than expected
unemployment rate has confirmed a lower and earlier peak
rate than had been expected. With total employment up 35.2k,
a cumulative 135.7k rise has been seen in four months, an
annualised growth rate of 3.8%. Part-time jobs accounted for
most of the latest rise, but the full-time/part-time split looks to
have reverted to its historical saw-tooth pattern. Full-time jobs
still posted their fourth consecutive rise for a cumulative 78.3k
gain, an annualised growth rate of 3.1%. The seasonally adjusted
unemployment rate peaked in October at only 5.8%, falling
to 5.5% in December, with the trend rate falling since August.
Aggregate monthly hours worked have trended higher for six
months although remain 1.2% below their peak.
• Our composite of business survey employment indices has
recovered smartly in recent months to net positive territory
(currently 50.4 in December), but is at a level consistent with
smoothed jobs growth averaging only 11k per month, well below
the current trend. While average hours worked are trending
higher, they remain 2% below their peak indicating spare
capacity in the existing workforce that should temper outright
hiring. Still, the rapid turn in surveyed business conditions and
our outlook for accelerating domestic demand growth through
2010 implies a pick up in annual trend jobs growth through 2010
to 1.8%yr from 0.76%yr in December.
• We do not expect the recent fall in the unemployment rate to
continue at this pace through 2010, with a flatter downtrend
in prospect. Accelerating working aged population growth
and likely higher participation rates is lifting the monthly jobs
requirement to hold the unemployment rate steady. Still, with
the peak unemployment rate confirmed, the labour market is
tightening from a less-loose than expected starting position. This
reinforces our call for a 25bp rate hike in February and a further
50bp in Q2.
• The headline results showed a 35.2k jump in jobs (consensus
10k) after a 31.4k rise previously, with full-time +7.3k (vs
+31.1k prev). The participation rate was steady at 65.2%. The
unemployment rate fell to 5.5% from 5.6% (consensus 5.8%).

Source Westpac Research

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