Ignore The Jobs Figures: Rates Will Fall Next Month

Despite the questions over the latest employment figures, we can say jobs growth is slowing, slowly.

Nearly 11,000 new jobs were created in July as there was rise in full-time employment, instead of a fall, as some analysts had suspected might happen.


The 10,900 new jobs gained was double the 5,000 predicted by Bloomberg in a survey, or just over 1,000 by other surveys.

Complicating the figures was a noticeable cut in the number of new jobs created in the surprise upswing in June: originally the abs put that at 29,800 but that was cut to around 22,000 with revisions to the jobs data for May and June, so it's almost certain that the July figures will be re-jigged.

The new sample-based survey surprised with 53,700 new full time jobs created (which is a little odd given the talk of retrenchments at some large and small companies) and 42,800 part time jobs were lost (which does fit with some anecdotal evidence).

The AMP's Dr Shane Oliver said that while the employment data for July came in slightly stronger than expected, "The trend in monthly employment growth has slowed to just below 6000 new jobs a month from nearly 29000 new jobs a month six months ago and the unemployment rate is off its low of 3.9% earlier this year.

"It should be borne in mind that the labour market is usually a lagging indicator of the economy and so it is not particularly surprising that it is still showing some signs of life.

"It usually takes a while for companies to turn around their HR programs from hiring to firing, but the closures and layoffs at Starbucks and a few other companies are likely to be a sign of things to come.

"As the weakness already evident elsewhere in the economy, particularly in retailing and housing, start to feed through we expect much softer readings for employment in the months ahead and see the unemployment rate heading up above 5% by June next year.

"As a result we don't see the slightly better than expected rise in employment in July as dimming the case for a rate cut next month."

But according to another economist, Macquarie Bank's Rory Robertson, there is reason to believe that the latest figures are a bit unreliable.

"Given the uncertain effects of the crazy cost-cutting shift to a new one-quarter-smaller sample-size, the monthly ABS jobs data are a waste of space for today and the next several months at least.

The ABS notes there now is "increased volatility" in its estimates. That is, we have no way of knowing anything about the news/noise ratio of today's jobs report," Robertson wrote.

"Taking my pick of things to say, the only news I take seriously is that the three-month-average unemployment rate is 4.3%, about 1/4pp above its generational low near 4% in March.

"With ANZ job ads slumping, particularly in Queensland, NSW and Western Australia, it is clear that the national jobs market is softening along the lines desired by the RBA

"On policy, an RBA cut on 2 September remains a given. The only question is whether it's 25bp or 50bp. In any case, we're likely to see something like 1-1.5pp worth of rate cuts over the coming year, maybe more.

"One of the key issues is how far the RBA will have to cut, for example, to reduce mortgage rates from 9.55% to 8.05%.

"That is, if the RBA ultimately chooses over the coming year to reduce standard mortgage rates back where they were a year ago, it may need to cut by more than 150bp."

And, because of that worry the Rudd government and specifically, Finance Minister, Lindsay Tanner, are reaping the downside of their miserly $20 million or so cut in the budget of the Australian Bureau of Statistics Budget in the May budget.

Poor or unreliably figures can mean bad policy.

The cut has forced the ABS to change the frequency and size of its samples for a range of statistics and increase the uncertainty and their reliability until economists and others get a handle on the impact of the changes over the next few months.

It will be three weeks or so until we see the first set of statistics for retail sales and building approvals prepared under the new regime.

Both have been showing the damage the tighter monetary policy, higher oil prices and the extra bank rate rises have been having on the consumption parts of the economy.

Now, the stock market finished mixed to weaker as some analysts reckoned the jobs figures might postpone the rate cut expected next week.

And the Australian dollar recovered over 91 USc on the same expectation. It then fell back under that level in trading overnight Thursday as the US dollar firmed against most major currencies.

Both are unreal reactions to jobs figures that showed little significant improvement. Putting aside the questions over the reliability of the figures, there's every sign that jobs growth is sagging.

If the nervous Nellies among forex and equities traders reckon this is going to stop a rate cut on September 2, then there will be some very disappointed folk in less than a month's time.

The Aussie dollar remains under pressure as the US greenback slowly hauls itself back out of the mire.

It did this earlier in the year, only to sag again.

It could happen again, but the Aussie dollar is looking a bit peaky, parity is gone, and our huge debt and current account deficits remain a concern.

A fall under 90 USc in the next one to two weeks would not surprise, especially if oil heads towards $US100 a barrel.

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By: Australasian Investment Review

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