We can rule out an interest rate increase next month, and possibly for the rest of the year after the weaker than expected jobs report for August
On the face of it the report showed that the Australian economy has again shown its resilience with the unemployment rate last month steady on 5.8%, where it has been since June.
The reality is that is in keeping with the flow of economic figures recently and August’s labour force numbers from the Australian Bureau of Statistics told a different story, once you looked under the headline rate.
And that is, the economy continues to need its jolt of stimulus spending for a few more months.
More than 27,000 jobs were lost in the month, with 30,800 full time positions going and just over 3,000 part time ones being created.
It is a direct reversal of July when a surge in part-time work offset a fall in full time jobs to send total employment up 32,200.
It’s also an outcome that will push any move from the Reserve Bank to lift rates back to November-December, or even to February, if September’s employment numbers are again weak in a month’s time.
That’s also a view from Macquarie’s Group’s interest rate strategist, Rory Robertson who said yesterday in an note:
"The fall in full time jobs takes total full-time job losses over the past 13 months to 222,000, or 2.9%.
"That remains much less severe than in the previous two recessions, but there may yet be some way to go.
“The trend in full-time jobs – and thus aggregate hours worked – clearly remains down (4 million in the month), and economic recoveries are barely worth talking about, in my opinion, until they are strong enough to stop any downtrend in full-time employment.
"Accordingly, there now is no way in the world that the RBA is going to hike (rates) in October.
"Even November now is a 50-50 bet. A pre-Christmas tightening will require more good news on the jobs front than a (temporarily) flat unemployment rate alongside an upward squiggle in newspaper job ads.
"The employment market obviously is much weaker than suggested by that recent stabilisation under 6%," Mr Robertson wrote.
The AMP’s Shane Oliver wrote:
"The August labour market report for Australia presented another confusing picture with employment falling, driven again by full time jobs, but unemployment remaining stuck at 5.8%.
"Given the month to month volatility in employment the unemployment rate is probably a better guide to the underlying trend and it is showing signs of being close to a peak.
"This is a pretty good outcome compared to the 9.7% unemployment rate in the US and 9.5% in Europe.
"Given the run of generally stronger than expected economic data over the last few weeks our assessment is now that the RBA will start raising interest rates before year end, but the continued fall in hours worked and recent weakness in retail sales along with weak inflationary pressures indicate that initial moves to raise rates will be gradual, much as occurred at the start of the last tightening cycle back in 2002."
Retail sales, housing finance, consumer and business confidence and building approvals, plus the trade figures, tell a mixed story about the state of the economy.
Improving, but not booming.
The labour market, like the rest of the economy, hasn’t fallen in a heap, like the US labour market has, where the August rate is 4 percentage points higher than ours was last month.
But the picture isn’t as confident as appeared in the July labour force figures.
Economists had been expecting a rise in the number of job losses with estimates ranging from around 15,000. The unemployment rate was forecast to edge up to 5.9%.
But that didn’t happen because of a 0.2% fall in the participation rate to 65.1%, the biggest fall for more than a year.
Falls in the participation rate are said to indicate a loss of confidence among people looking for work, so they drop out of the system.
It usually happens when there’s a bit of doom and gloom about, but that’s at odds with the recovery in both business and consumer confidence in the past four to five months; this week saw the NAB’s survey of business confidence report a six year high and the Westpac survey of consumer sentiment reported a two year high.
The fall in the participating rate could easily be reversed in this next month’s report, but it is another sign that the overall economy isn’t as strong as some of the figures suggest, especially the June quarter growth numbers.
It does emphasise however the importance of the spending stimulus which helped the labour market steady from March-April through to July.
In July the ABS reported: that employment "increased by 32,200 to 10,793,600. Full-time employment decreased by 16,000 to 7,590,400 and part-time employment increased by 48,200 to 3,203,200." And unemployment "increased by 800 to 664,100.
"The number of persons looking for full-time work decreased by 4,800 to 495,900 and the number of persons looking for part-time work increased by 5,600 to 168,200."
This morning it reported that in August, "employment decreased by 27,100 to 10,763,600."
"Full-time employment decreased by 30,800 to 7,553,800 and part-time employment increased by 3,800 to 3,209,800.
"Unemployment decreased by 2,100 to 663,600. The number of persons looking for full-time work decreased by 8,800 to 488,100 and the number of persons looking for part-time work in
