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Why Australia’s strengthening economy could mean no RBA cuts in 2020

The RBA may not cut interest rates in 2020 based on today’s latest job figures.

A key part of the RBA’s decision making is looking at the economy and how the jobs market is faring. During 2019 the unemployment rate had been steadily rising from under 5% to 5.3%.

But the country can have a Christmas cheer about the November 2019 figures released by the Australian Bureau of Statistics (ABS) today.

The unemployment rate declined from 5.3% in October to 5.2% in November 2019. Using the seasonally-adjusted numbers, employment increased by 39,900 people with an extra 4,200 full-timers and an additional 35,700 part-timers. The number of unemployed people decreased by 16,800 to 708,100 people.

RBA governor Dr Lowe said that the economy may have reached a gentle turning point and it seems he may be right.

Considering the Australian property market is now flying, the RBA may decide to hold back on any further cuts in the first half of 2020.

Many economists had been pencilling in a rate cut as early as February next year, which is the earliest opportunity for the RBA to take action after Christmas.

We’ve already seen and heard from various areas of the economy that things might be starting to turn around. Brickworks Limited (ASX: BKW) is reporting a growing order book, house prices are jumping, Afterpay Touch Group Ltd (ASX: APT) reported very strong sales on Black Friday and Cyber Monday, and so on.

It may be a bit too early to tell if things are fully on the mend, but an end to interest rate cuts would help savers feel a bit more confident to return to normal spending.

Foolish takeaway

A lower unemployment rate is good news for Commonwealth Bank of Australia (ASX: CBA), SEEK Limited (ASX: SEK), JB Hi-Fi Limited (ASX: JBH) and plenty of other economy-facing businesses. Regardless of what happens next, I want to stay invested in high-quality ASX shares with good growth potential.

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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Brickworks and SEEK Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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