Today's jobs numbers are quite revealing. In total, the economy created just 7,800 jobs. Economists were expecting something in the order of 25,000 jobs. In fact full time positions were down by 22,000. It was part time work that put in the hard yards - up 29,800. The unemployment rate remained steady at 4.9 per cent for a third month in a row.
It's true that the unemployment rate has a long and distinguished career of being quite volatile and can differ greatly from month to month. However, taken in conjunction with some recent data releases, it makes for an interesting narrative.
Higher prices for utilities, fuel, rents, fruit and vegetables, and money (interest rates) have all produced a weaker and timid consumer. We also seen consumers shy away from credit and there's been a surge in the savings rate. This has all had a significant impact on Australian retailers - and on discretionary stocks on the share market for that matter too. A higher Aussie dollar has also hit some of our biggest exporters like Bluescope Steel and many of our manufacturers as well. Combine all this and you could be forgiven for thinking the economy was under siege.
The bright spot of course is the resources sector. This has produced a record terms of trade and has provided a stimulus for a surge in private sector investment. Without this the economy would be in recession. This became obvious when the latest GDP figures came out negative (with the impact of cyclone Yasi and the Queensland floods hurting coal miners). Again, I imagine the unemployment rate would be significantly higher too if this were to provide an on-going leakage for the economy.
So what's all this telling us? I think it's fair to say that the unemployment rate cycle may be starting to turn. It is possible that it may move slightly lower in the medium term - reconstruction efforts in Queensland, a resumption of the mining boom, a steady interest rate environment (providing relief for the retail sector) and a falling dollar (helping manufacturers) all being quite helpful in this regard. But the broader fundamentals (as mentioned above) remain challenging. To be more specific, if China slows to any significant degree, the economy will lack the stimulus to generate the growth needed to provide significantly more jobs.
The simplest way to judge things is to look at the Aussie dollar. It fell when those negative GDP numbers came though. It also fell when the RBA held interest rates steady earlier this week and provided what could only be described as a more dovish statement with the announcement. Fact is the money market isn't anticipating higher interest rates for some time. That's because the economy is reasonably vulnerable, a lot of the interest rate work has already been done, and the higher Aussie dollar is by default contributing to policy by reducing imported inflation and slowing the manufacturing industry.
Today's Aussie dollar slip on the back of those employment numbers simply drove the message home. The market's saying the numbers are weak enough to suggest the RBA lacks the evidence to take rates higher in the short to medium term. That also suggests the market sees these latest employment numbers as more than just a blip on the radar. We are edging closer to full employment but I don't believe the broader economy can sustain an unemployment rate below 5 per cent within the context of the current economic back-drop.
David Taylor
