Rate rises hit consumers' confidence

A dip in consumer confidence is unlikely to deter the Reserve Bank of Australia (RBA) from lifting the cash rate again when it holds its next board meeting on December 1.

Thursday's release of labour force data for October will have a greater sway over the interest rate policy outlook, economists say.

New government data released on Wednesday indicated that employment growth is on the brink of picking up.

Other data showed a second interest rate rise in as many months took the froth out of consumer sentiment in November, suggesting further increases will have a greater impact on households.

The Westpac-Melbourne Institute index of consumer sentiment fell by 2.5 per cent in November after five consecutive monthly increases, following the RBA's October decision to raise rates for the first time in 19 months.

"Given that this fall comes after a second consecutive increase in the Reserve Bank's overnight cash rate and associated increases in variable mortgage rates, it has to be classified as a modest response," Westpac chief economist Bill Evans said, in releasing the data.

Sentiment is still 38.3 per cent higher than a year ago, and with the index remaining above 100 at 118.3 points, it indicates that there are still more optimists than pessimists.

Commonwealth Bank of Australia economist James McIntyre said the minor dip in consumer sentiment would not be sufficient to dissuade the RBA from raising the cash rate by a further 25 basis points in December.

"A third consecutive rate hike would be unprecedented in the inflation targeting era for the RBA. But so (was) an emergency three per cent cash rate," Mr McIntyre said.

Mr Evans expects the RBA to deliver another rate increase next month, even though the sentiment survey indicates that the rate hike cycle has probably reached a point when households will become increasingly sensitive to further moves.

Confidence is still at "remarkably high" levels, and the central bank is likely to take the opportunity to gradually remove more of the monetary stimulus.

"Today's results do, however, signal that the extent of rate hikes in 2010 envisaged by current market pricing is unlikely to transpire," he said.

Money markets are pricing in a cash rate of around 5.25 per cent by this time next year from 3.5 per cent.

Key to December's interest rate thinking will be Thursday's labour force report for October.

Economists' forecasts centre on a fall of 10,000 in the number of people employed, with the jobless rate ticking back up to 5.8 per cent after a surprising dip to 5.7 per cent from that level in September.

The Department of Education, Employment and Workplace Relations' monthly leading indicator of employment released on Wednesday rose for a fifth straight month in November.

The gain follows 19 months of successive falls.

"The indicator is still tentatively foreshadowing a quickening in the pace of employment growth to above its long-term trend rate of 1.8 per cent per annum," the department said.

The leading jobs indicator anticipates movements in the growth cycle of employment, with a turning point confirmed after there are six consecutive monthly movements in the same direction.

In last week's mid-year budget review, the government forecast employment growth of 0.25 per cent in 2009/10 and 1.5 per cent in 2010/11.