Take the September jobs report and many of the reactions to it with a great big grain of salt or, better still, take a cold shower if you think it’s good news.
Traders in currency markets couldn’t work out whether it was good news (RBA rate cut looms) when the data came out at 11.30 am yesterday (selling the dollar lower) or then bad news meaning no rate cut (the dollar rose) or just plain confused (the dollar drifted for the rest of the day) as they and their house economists tried to work out the real message from the data.
By the close of trading here, it was good news in that the dollar was down around 94 USc, with economists saying it will increase pressure for a rate cut.
But of equal impact was the belief that a deal is in the offing in Washington on the budget and debt ceiling impasse.
The late slide in the dollar was easy to understand if you viewed September’s report as another month of confusion, reflecting the sluggish progress of the economy.
In fact the jobs data for the past five months has been weak – after a rocket-like start to the year.
Since April a whole 600 jobs have been created on a trend basis – and that’s nothing worth boasting about when the population is growing at 1.8% annually, meaning upwards of 20,000 new jobs are needed each month to keep a lid on unemployment.
Jobs growth is running at an annual 0.8% (and boosted by the strong rise in the first three months of the year), which means there’s a store of unemployed being built up.
And yet the number of people unemployed fell 14,700 on a seasonally adjusted basis (which is a volatile measure), while on a trend basis (designed to smooth out that volatility) unemployed fell 300. Again, hardly the stuff of a fabulous jobs report.
The ‘improvement’ in the unemployment rate to 5.6% in September (seasonally adjusted) and the creation of 9,100 new jobs (more than the 10,200 lost in August which was a revision down from the original loss of 10,800 jobs) were statistical blips.
Ignore jobless fall – labour market softer than official data suggests
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On a trend basis, the jobless rate was 5.7% last month and a whole 200 new jobs were added.
Hours worked fell 0.4% and are up 0.6% in the year (and boosted by the strong first quarter).
The key is the declining participation rate – now down to 64.9% from 65% last month and 65.3% a couple of months earlier.
September’s rate is the lowest for seven years (since November 2006), which tells us tens of thousands of people have stopped looking for work in recent months.
The AMP’s chief economist, Dr Shane Oliver explains why this a worry.
"A declining participation rate – reflecting both a discouraged worker effect and the demographic impact of an ageing population – has been masking labour market softness for a couple of years now. For example, if the participation rate had remained at its 2011 average level the unemployment rate would now be 6.6% – not 5.5%.
"So while its good news that the unemployment rate fell, it doesn’t reflect a stronger labour market. In fact the labour market remains quite soft," he wrote late yesterday.
"However, while employment growth is weak the September jobs report is consistent with the RBA remaining on hold with respect to interest rates.
"Jobs growth is probably no weaker than the RBA had been allowing for, the labour market is a lagging indicator of economic conditions and will be the last indicator to turn around and while its distorted the better than expected outcome for unemployment is a bit of a positive for household confidence.
"In terms of the latter, the continuing fall in the participation rate suggests that the official unemployment rate may end up peaking around 6% rather than Federal Treasury’s prediction for a rise to 6.25% next year," Dr Oliver wrote.
Working on the basis of briefings from Treasury and the RBA, the IMF this week suggested unemployment could peak at 6% next year.
Seeing Treasury has forecast twice this year jobless rate 6.25% for 2013-14, some commentators yesterday wondered if the IMF forecast was the good news for the week.
But we won’t know that until the first quarter at the earliest of 2014.
So don’t look for the RBA to cut rates – it has already said it is waiting for the favourable impact of the rate cuts last year and the ones in May and August to have an impact on the economy. That won’t really happen until 2014.
House prices are starting to rise in Sydney and Melbourne – and Perth. But they remain weak in Brisbane and Gold Coast and in other coastal areas of the state which have traditionally been hot spots.
In seasonally adjusted terms, the unemployment rate fell in NSW (because the participation rate also fell), South Australia and Western Australia. But it rose from 5.7% to 5.8% in Victoria, and remained steady in Queensland and Tasmania at 5.9% and 8.3% respectively.
In trend terms, the jobless rate stayed at 5.5% in the Northern Territory, and rose slightly in the ACT to 4.1%, the lowest rate in the country.
