Ship of fools sail the jobless seas

From the SMH comes the ship of fools:

ANZ economist Riki Polygenis

While new labour demand is holding up, it is not enough at present to offset retrenchments in particular industries such as mining and manufacturing or to keep up with the flow of new workers into the economy.

For monetary policy, today’s figures are more consistent with the RBA’s revised forecasts for the unemployment rate to rise further and to stay elevated for an extended period. We expect a further rate cut in H1 2015, most likely at the next board meeting in March. We will receive more colour on this when governor Glenn Stevens speaks to the House of Representatives Standing Committee on Economics tomorrow morning.

RBC Capital Markets senior economist Su-Lin Ong

There is an element of payback from a strong December and reasonably firm quarter. Weakness concentrated in full-time jobs and the unemployment rate looks like heading back upward. It is a soft labour market and fits more broadly with the sub-par pace of growth, the weakening in domestic demand and what is a probably challenged outlook for the economy.

We see a fairly sticky jobless rate in the 6.25-6.5 per cent range. The report sits with the (Reserve Bank of Australia) easing bias. We have the next cut in May. Numbers like this suggest the risk is sooner but I don’t see any new news with these numbers.

CBA economist Diana Mousina

The employment numbers were a little weaker than consensus but the shocking part of the numbers was the strong lift in the unemployment rate to 6.4 per cent.

We think it’s a clear sign that the RBA will change the cash rate to 2 per cent in March. Their forecast has been for unemployment to peak at 6.5 per cent in mid-2016 we think there’s a chance that now the unemployment peak will be a little bit higher.

TD Securities head of rates strategy Annette Beacher

This report follows three consecutive “stronger than expected” prints, and the RBA Board is highly unlikely to react to “one report”. While the smoothed employment profile is +25k (3mma, a fairly healthy pace) the u-rate trend is not pretty with 6.4 per cent a 14yr high.

The recent RBA statement of monetary policy clearly stated that the Bank expects the unemployment rate to be higher for longer, so this report remains within the bounds of prior expectations. Another step down in employment and a jump in the u-rate past 6.5% is another matter. Wait and see is prudent here.

NAB economist David de Garis

It brings the numbers back to the trend that most people would have expected the labour market to portray. We know that job advertisements and some other leading indicators suggest that there is some employment growth, but that was overstated, particularly in the December numbers, so we’ve got some payback from that.

We’ve still got employment growth but not enough to cap the unemployment rate unfortunately. The headlines are obviously pretty negative and the market’s reacted quickly to that so it’s probably a bit of an overraction in the short term. But it’s very much the thematic the RBA applied when they cut rates.

Very good. Couldn’t be that the immigration backfill strategy can’t lower unemployment because every person added to the economy contributes less to demand than they take away in productivity destruction for everyone already here, could it?

I’m finding the work of Annette Beacher especially entertaining, with her focus on the looming inflation breakout and three rate hikes coming from year end.

Lock in rate cut number 11 for the cycle at March meeting.

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

  1. Who cares what these people say? There are few things more boring, less credible and less important than the opinions of junior talking head bank economists.

      • If you really believe what you say, then you will sell your house and put all your assets into cash, pronto.

        When and if you do that, I will take your bear porn seriously.

      • Acme – You MUST be a real estate agent! Building and real Estate the only parts of the economy going well. I did hear a bit of scuttlebutt that building not going so well in some regional centres though (not mining – NE NSW)

        You’re right HnH With the current insanity that passes for economic thinking Glen will come and feed us the loaves and fishes from his lofty tower and we will rejoice and live happily forever after in the land of mines and real estate.
        Edit: Woops! Well….Real Estate – mines not a happy place any more!

      • When you, ACME, engage with my argument rather than throwing poo like a monkey, then I will take you seriously.

        Tell me why:

        a) the Budget will not be downgraded in the next global shock
        b) that will not trigger higher costs of funds for the banks just as we run out of monetary policy bullets.

        All you have to is is debunk those two assumptions and you win.

        Go to it, Stingray.

  2. Australia’s immigration intake has to be a huge negative for unemployment. We have an inflow of student visa holders, 457 visa holders and those seeking to gain permanent residence under normal immigration rules as sponsored workers. All that adds up to about 320,000 people a year, with about 70,000 departures a year.
    For each ‘skilled’ immigrant there are on average 3 dependents, creating more demand than it satisfies, so immigration is the problem for which it masquerades as a cure.
    It is manifestly insane to run a net immigration programme when unemployment is 6.4% and under-employment probably doubles that number.
    Australia needs some more common sense management and a longer term plan for population that would see it stabilise at some point.
    Real growth, not population growth or if you like, better not bigger!

      • Correct we nee to be better led/managed for sure. But even if we are better led, (and there is currently no evidence of that happening from any of the major political forces) and have more sensible policies on innovation, careful resource management, skills training and education, all will be undone while ever the population continues to expand, nullifying any improvement per person.

        Even worse, in the current set-up, most wealth creation is captured by the wealthiest 10%. This type of disparity is very corrosive of our social society. EG. in the USA there has been no net increase in real per capita wealth over the past 10 years, with the poorest 30% going backward and only the top 10% seeing an increase in real terms, largely driven by QE’s impact on asset values.

  3. While new labour demand is holding up, it is not enough at present to offset retrenchments in particular industries such as mining and manufacturing or to keep up with the flow of new workers into the economy.

    I remember MB predicting this 2 years ago

    • “Real growth, not population growth or if you like, better not bigger!”

      Pray Malcolm does not become Prime Minister.

    • That’s the trouble Alby. There are inevitable trends off in the distance a little. Modern economic thinking and planning is totally myopic.
      🙂 Bit like HnH on inflation!!! 🙂

    • I always thought when the government decided to shutter the Auto industry this was a failed policy (independent of any MB analysis I read post my own thought process). I did some rough calculations at the time and the tax receipts of the Auto industry employees as a whole largely offset the subsidies paid to the industry.

      Given that the mining boom was ending, it made little sense to transition tax paying workers into an economy with a surplus of labour, making these workers effectively unemployed and a tax burden, and potentially vulnerable to long term structural unemployment.

      Of course Abbott and his smart Treasurer would have used their magnificent foresight to understand this, and being the excellent captains of our nation decided it was a good idea to shut down our industry.

      Well done Team Australia.

      • Robert
        Not sure the decision to shut was an instant one born of Abbott’s rise.
        Wasn’t the issue that despite the subsidies the companies could still not make any money?

        Don’t get me wrong. If the dollar had been valued at its real value i.e. the value at which the Current Account balanced I’m sure the car plants would have been very profitable for a very long time.

      • I understand their profitability was an ongoing concern, however I believe the Treasurer and the PM took an unnecessarily hard line when negotiating with the car industry, and the decision to reduce funding to the ATS by approx 500 million caused GM to decide it could no longer continue without these previously promised subsidies.

        The line that Abbott used was that when one industry closes, a new one will start, and just as jobs will be lost, new ones will be found..

        Well just another big lie and policy failure one can add to Abbott’s list of “achievements”

      • Ford didn’t help itself, or Australia, by building the Falcon. Shit car that no one wanted to buy and couldn’t be exported as it couldn’t be converted to left hand drive. If that is the best that their “world leading” design team could come up with it make no sense for the Australian government to throw more money their way. Holden and Toyota have different arguments.

      • The car industry could have helped itself a little bit & made something that people were going to buy. Unfortunately not too many Australians were that interested in the products. So how long do you hold on for? The end day was coming unless a major overhaul of product was possible. Maybe 60c to US$ might have made a difference, I doubt it though as we were well & truly not buying their products.

      • @ Robert
        ” The line that Abbott used was that when one industry closes a new one will start…”

        Well we had a new one starting, Renewable Energy,that would have used lot of the skill sets of the auto industry workforce, but in his Idealogical wisdom he killed that one to.He is The Wrecking ball in this economy, Bring back the Carbon Tax,it at least added to the treasury coffers.

      • GunnamattaMEMBER

        As recently as 2011 automotive manufactured exports were quite sizeable. It was the high AUD which killed them. Ford had decided by 2012 not to put the Falcon on their global chassis (which was the reason they couldnt export) but they had also by that stage had the government kick them in the teeth with the FTA (and this was an ALP government from memory) bringing in imports from nations where Ford was trying to sell Australian made cars with a large tariff remaining in play.

        When the end came for GMH, the story I was told was that GMH were still trying to work out how viable it would be to produce in Australia – and they tended to the view that the AUD would be coming down in the longer run – but the advent of Abbott and particularly Hockey (whom I understand was straight out dismissive in the first meeting he had with them) told them their time was up – and then of course was the famous parliamentary tirade, which triggered the call from the US and subsequent closures.

        The biggest single problem for automakers here were that A, they were seen as heavily unionised (and therfor nobody was interested in going into bat for them politically) and B. manufacturing in Australia was excised from the national decisionmaking process about the time someone somewhere decided on the lift the AUD to crush tradable inflation for a mining boom approach.

        The cars they made – particularly the larger 6 cylinder cars – were made for a market which generally wanted them. Dont get me wrong I am not saying all was well with automaking, but I am 100% sure that Australia will regret its approach to their demise.

        ….and I reckon we will see (and I reckon soon) a load of US style larger cars on our roads (which will have people scratching their heads and asking why we couldnt build that).

      • Interesting, a friend was PA to senior management at one of the auto makers till 5 years ago. According to her, the issue was hoping medium large models would continue selling……. but they didn’t. Worse, for all the analysis by in house experts and o/s head office, no one seemed to get it?

        Maybe it’s the disease of complacency, in many sectors management become administrative automatons endeavouring to maintain the status quo, often requires bypassing more effective product design, business insight etc..

    • Politics, unions, subsidies and profits aside, letting the car industry die was an Australian tragedy that will leave a mark on the national psyche for a long time.

      We can’t even make our own cars.

  4. 0.25% cut in March is given. Next GDP number will be 0.1, 0.0 or -0.1 (out second week of March)
    2% or 0% interest will make no difference. We have reached the tipping point of effectiveness of interest rate cuts.

    End of the day bank has to make profit. They won’t make profit by borrowing at 0% and lending at 0% to housing investors. Banks have to make profit to pay dividend, staff salary and so on.

    If we learn from US minimum commercial/residential rate is ~4%

    RBA has to enter QE program or government has to enter stimulus package to prolong the inevitable.

  5. Analysis from Sydney and Melbournite bankers is so far removed from the realities of WA and QLD

    Does 15% office vacancy mean anything to these knuckleheads? What does that say about employment?

    As long as Sydney moves that median home price closer to a ‘dollar’ as all good spivs like to call a ‘bar’ nowadays – the CBA at $100 makes total sense to them.

    It’s no coincidence the RBA and senior LNP are firmly enclosed in the Sydney dome of ignorance