Jobs data tops economic agenda as Iran war re-escalates
Jobs data is expected to show continued resilience in the Australian labor market, but renewed conflict in the Middle East could bring more bad news for the local economy.
The unemployment rate is expected to remain stable at 4.4 percent in the June labor force figures to be announced by the Australian Bureau of Statistics on Thursday.
After a surprisingly strong 40,000 job additions to the economy in May, Citi economists Josh Williamson and Faraz Syed forecast job growth to slow to 20,000.
However, they believe that with the participation rate remaining at 66.7 percent, the unemployment rate could fall to 4.3 percent (from 4.36 percent to 4.34 percent overall).
ANZ economist Aaron Luk said only a small drop in the number of unemployed people would be needed to reduce the rounded figure to 4.3 per cent, although the base case forecast is for the rate to remain steady.
“This is broadly consistent with signals from labor demand indicators, with ANZ-Real Australia Jobs remaining broadly unchanged for the month (-0.2 per cent on a monthly basis) and the NAB employment index easing slightly,” he said.
NAB chief economist Sally Auld said early evidence suggested the labor market was starting to soften.
“So we see the unemployment rate rising further in the back half of this year and into next year,” he said at a media briefing.
Optimism in Australia’s strong employment market could be dashed by a re-escalation of the US-Iran conflict.
Oil prices have rebounded since the last closure of the Strait of Hormuz, citing reports that if US attacks escalate, Iran could direct the Yemen-based Houthis to block the Red Sea oil route, threatening an even greater disruption to energy supplies.
Economists at ANZ said that for the Reserve Bank, a resumption of conflict in the Middle East would likely be seen as an upside risk to inflation.
“While we expect the cash rate to remain at 4.35 per cent, we do not rule out ongoing price pressures pushing the RBA to raise rates in November, assuming the August meeting will see no ‘change’ from the board,” they wrote in a research note.
Dr Auld said he expected the benchmark Brent crude oil price, currently around $85 per barrel, to rebound to between $70 and $90.
“At the bottom of that range, where we were at the beginning of the month, maybe the Iranians have an incentive to escalate and get a little mischievous,” he said.
“And at the higher end of that range, maybe there might be more of a U.S. incentive to de-escalate a little bit.”
Dr Auld said if prices started to move out of this range, we would be back to a scenario where it was the worst of both outcomes for the RBA.
“Not only do we have to worry about higher inflation and inflation expectations, but we also have to worry about real incomes being further impacted.”
Meanwhile, Wall Street investors’ attention was drawn to the potential slowdown in the artificial intelligence boom rather than the Iran war.
Dow Jones index decreased by 406.55 points (0.77 percent) to 52,146.42 points, S&P 500 index decreased by 76.08 points (1.01 percent) to 7,457.69 points and Nasdaq decreased by 361.70 points (1.40 percent) to 25,520.24 points on Friday.
Australian stock futures rose 54 points, or 0.61 percent, to 12,055.
The S&P/ASX200 fell 44 points on Friday, falling 0.5 percent to 8,796.7 points, while the All Ordinaries index lost 58.1 points, or 0.64 percent, to 8,978.8 points.
