I’m beginning to admire Paul Bloxham. He has the courage of his convictions. He will not be swayed on his call that the RBA’s rate cut cycle has bottomed (even a day after it didn’t bottom) and today’s labour market release is just the tonic:
Australia’s employment numbers showed strong growth in April, rising by +50k jobs (market expected +11k).
However, this follows some very volatile employment outcomes recently. But, looking through the noise, it does appear that employment has improved since the beginning of this year. The unemployment rate edged down to 5.5% in April, while the participation rate lifted. The labour force data are providing some evidence that the soft patch in growth may be behind us. Recent indicators also suggest that Q1 GDP is likely to be strong. The RBA may not need to ease any further.
Facts
– Employment rose by +50k jobs in April (market expected +11.0k jobs), which follows a fall of -31k jobs in March, and a rise of +72k jobs in February. These data have been very volatile recently.
– The unemployment rate edged downwards to 5.5% in April (market expected 5.6%), from 5.6% in March.
– The participation rate rose to 65.3%, up from 65.2% in March.Implications
Because the labour force numbers have been so volatile in recent months, it is hard to be too definitive about what today’s numbers mean.Nonetheless, one way to cut through the noise is to average the numbers since the beginning of the year. This shows that
employment increased by an average of +26k jobs per month since the beginning of the year, up from +6k jobs per month in
Q412. This approach also shows that the unemployment rate has edged up from +5.4% in Q412 to +5.5% since the beginning
of this year. The difference between the picture from the employment numbers and that from the unemployment rate reflects
that participation has lifted since late last year (from 65.1% to 65.3%).All in all, it seems that the labour market has shown some signs of improvement so far in 2013. This supports our view that the soft patch in growth may be behind us.
However, as the unemployment rate is still at 5.5% it is above full employment, which we think is around 5.0%, and is
therefore still not likely to put upward pressure on wages as yet. This has been one of the forces putting downward pressure on inflation, which has left the RBA with room to move – as they did earlier in the week.We continue to expect further improvement in the labour market through this year, as low interest rates lift the interest sensitive sectors of the economy. Thus, we have in mind that the RBA may not need to cut rates further.
Bottom line
Employment was stronger than expected by the market and the unemployment rate edged down to 5.5%The labour force data are providing some evidence that the soft patch in growth may be behind us.
As I’ve said since the beginning of the year, the problem is not the first half. It’s the second half some time when mining investment tips over and the risk grows of another down leg in iron ore prices. Whether my timing on the latter is exact is really besides the point though has been recently confirmed by Phat Dragon’s assessment of the efficacy of Chinese property price curbs. Either way, the Chinese rebalancing is proceeding and the next leg down in the terms of trade is as well, so the dollar must be brought to heal and Bloxo remains wrong on rates.
