Some Bloxo to lighten the mood (and get away from those nasty pics!):
Today’s employment numbers were disappointing. Employment fell by -4k jobs in January, which followed a fall of -23k jobs in December. This follows a run of weak labour market numbers, which left employment was flat y-o-y. The unemployment rate rose to 6.0% in the month, which is the highest rate since 2003. The employment-to-population ratio fell again, to its lowest level since 2004.
There is no denying that the labour market is weak. Taken alone, today’s data paint a weak picture of economic conditions.
However, the jobs data are increasingly becoming the weak outlier when you look across a range of indicators. The housing market is continuing to boom, with housing prices rising +10% y-o-y to January. New building approvals were +22% higher y-o-y to December, implying that residential construction is picking up. Retail sales grew at their fastest rate since 2009 in December, of +5.7% y-o-y. Surveys of business conditions jumped sharply in the past few months. Inflation was rising in the second half of 2013.
There are two options: either this range of indicators are misleading, and the economy is weak and deteriorating; or the labour force survey is the misleading us.
We favour the second explanation. The weight of evidence suggests that domestic demand was lifting in Q4 and into January as the economy rebalanced away from mining-led growth. We also know that the labour market tends to lag the economic cycle. Our estimates suggest that it typically takes 2-4 quarters before a lift in conditions feeds through to hiring (as we detailed in our recent ‘Downunder digest’, link below).
Timely partial indicators of the labour market – such as job advertisements and the employment questions in the business surveys (the NAB and ACCI surveys) – have also stabilized in recent months (see charts below).
It remains our central case that an upswing in domestic demand began around September 2013. The typical lags between activity and employment would suggest that jobs growth should start to lift from around March/April/May, which is our central expectation.
We continue to expect that the RBA will put greater weight on the range of indicators and, critically, on the inflation numbers, such that their easing phase is done. However, we are of the view that the unemployment rate would need to be falling before the RBA would consider lifting rates. We see the unemployment rate peaking around mid-year, although today’s numbers suggest that the risk is that this could take longer to occur.
Bottom line
The labour market data remained weak with employment falling by -4k and the unemployment rate rising to 6.0% in January.We remain of the view that the labour market is lagging an upswing in domestic demand that began in September and we expect jobs growth to start to lift in coming quarters.
We remain of the view that the RBA’s easing phase is done.
I won’t ruin it with my outlook but suffice to say that I disagree the RBA is done.
