Chapter 5

“Unemployment falls to a 30-year low in Australia”, iBlog Forex June 9/06
[http://iblogforex.com/34/forex-news/unemployment-falls-to-30-year-low-in-australia-inflation]

As the title states, unemployment in Australia has dropped to its lowest level in 30 years. This has ignited market fears of a further hike in interest rates and a huge drop in stocks. The jobs figures contributed to a 2.35 percent plunge on the Australian Stock Exchange. It was the biggest one-day loss since the 9/11 attacks in 2001 on the United States. The May unemployment rate of 4.9 percent was the lowest in Australia since November 1976. It came as a surprise and well below market expectations – the prior month of April was at 5.2 percent. The number of people employed upped from a seasonally adjusted 56,000 to 10.14 million compared with consensus forecasts of a 12,500 rise. It was only the twelfth time the data showed more than 10 million people employed in the country. However, analysts warned that if the jobless rate kept falling, the Reserve Bank of Australia could be, again, forced to raise interest rates to control inflationary pressure in the economy.

I believe Alberta recently had a case similar to this one where they’ve also reached a 30-year low in unemployment. That’s astounding, to say the least. This increased rate of employment undoubtedly contributes to the country’s labour force and will ultimately play a role in a higher annual GDP. Because of the increased amount of workers, more people have more money to spend, and GDP measures the value of final goods and services to indicate total income, so its raise is justified. However, no matter how well utilized the economy becomes, there will be the natural rate of unemployment. That is, if the economy is working at 100%, there will always be some type of unemployment present, be it due to frictional, seasonal, or structural factors.

In reference to the first paragraph, it’s also clear that there is another hindrance. If unemployment continued to lower, then interest rates would be amplified to keep the economy in check. This would be a form of demand-pull inflation. Thus, with Australia’s decreased unemployment, they just need to be wary about having the rate drop too low. On that note, kudos Aussies!