Being a labour market ‘grump’ isn’t easy. Believe me, I’ve tried. We’re happy when the unemployment rate goes down. The more people in work, the better. But we take sick pleasure in watching unemployment rise. If only because we feel it vindicates our views of the broader economy.
The last two months haven’t been easy for us. Despite overwhelming evidence of Australian economic fragility, the jobs market continues to plough ahead. Quite how it’s managing this remains something of a mystery. But who are we to question it? Even with potential gaps in the data, the overall trend is encouraging.
Sometimes, you just can’t argue with facts.
The latest ABS figures show the unemployment rate fell to 5.8% in November. That was down from a seasonally adjusted 5.9% in October.
Take nothing away from it. It’s a fantastic effort. If nothing else, it’s a ringing endorsement for the economy’s resilience. There is underlying strength there, hard as it is to figure out.
The data looks even more impressive when you see the raw numbers. There were 71,400 jobs created last month. And 41,000 of those were full time positions. Part time work grew by 29,700.
The participation rate also held firm. It was unchanged at 65.1%. Participation measures the amount of people looking for work. When it rises, the unemployment rate climbs. When it falls, the jobless rate does too.
In previous months, participation played an important role in pushing down unemployment. As job seekers drop out of the market, they lose their unemployment status. But participation played no part in the positive figures from last month.
It wasn’t just us cynics left confused by all this. Impartial observers were equally dumbfounded. Here’s a selection of market reactions to the data:
‘The labour market survey has a history of wild moves and we can’t rule out the possibility that these figures are providing a pretty big bum steer. But even underneath the salty surface the labour market does appear to be strengthening.’
Paul Dales, Capital Economics
‘I think the numbers are exaggerated by sample rotation. Almost all the gain in jobs in the month was due to people rotating to the sample and not quite matching the characteristics of the people who rotated out. Definitely the numbers are overstated but there’s still some better results than what the market had anticipated.’
Kieran Davies, Barcalys
‘You can’t ignore these numbers forever. They are strong, unemployment is low and is running ahead of most other indicators on the labour market. Even though they improved, they don’t go to that extent. We have the unemployment rate at 6.5 per cent over the course of next year, so 5.8 per cent now makes it harder. We have a rate cut (forecast) for Q1 and (unemployment figures don’t) help our argument.’
Michael Turner, RBC Capital Markets
And one final reaction (emphasis mine):
‘We looked at the October number as almost too good to be true and you look at today’s number and it blows it out of the water even more. So two very, very strong back to back months and it’s very difficult to pin any drivers down because economic growth is still pretty soft.
‘The firms are hiring, but I don’t know if the pace they’re hiring at is at multi-year records. It looks very, very strong, almost too good to be true so they (RBA) don’t over react to one or two months of data, so they’ll see how the trend settles out and what the data does in the next one or two quarters.’
Tom Kennedy, JPMorgan
Mr Kennedy brings up an important point. Even if questions over unemployment remain, the RBA is likely to keep rates steady. At the very least, it could use the labour market as proof that rate cuts aren’t necessary. It’ll save that ammunition for when it really needs it.
That could be in two months’ time. Or it could be in six months’ time. But you suspect the days of monetary easing aren’t over just yet.
Maybe we grumps need to admit the economy is doing better than we believe. It’s a tempting thought. But we’ll bide our time. Things don’t add up. We’ll wait until they start doing so.
Junior Analyst, The Daily Reckoning
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