The December jobs number was a fairly pivotal report. It’s a game-changer, as it shows the nation enjoyed the strongest jobs growth on record in three months to December. In fact, 188,000 jobs were created over that period (original terms), which compares to more ‘normal’ jobs growth of about 90,000 (10-year trend over that period).
That’s a fantastic outcome, yet somehow the Australian Bureau of Statistics reckons this equates to jobs growth of about 100,000 when you adjust for seasonality. That’s still strong -- the best result in about a decade -- but it’s not that much above ‘normal’. That’s a problem given the unadjusted numbers suggest jobs growth was well and truly above normal. It looks like the ABS is still working to soften the numbers to make them more palatable, when the seasonal adjustments should in fact be working the other way.
On a more positive note, this latest labour force print does correct in part, for obvious seasonal adjustment errors, on the unemployment rate. There is still some way to go.
For instance, the decline in the unemployment rate from an unbelievably high 6.3 per cent, now looks a little more realistic at 6.1 per cent. Yet that is still above what the unadjusted numbers tell us at 5.9 per cent.
On the unadjusted figures, the unemployment rate has been broadly steady at around 5.9 per cent since April 2014. So we can’t say the difference between the original figures and the adjusted figures is seasonality. The nine months it’s been steady shows that it clearly isn’t. It is more likely a measurement error. In any case, in unadjusted terms, this is the first December we haven’t seen a spike in the unemployment rate since 2010. Prior to that you have to go back to 1998.
So realistically (and if you want to talk seasonality) the unemployment rate must be closer 5.7 per cent, or even lower when you plug in the correct seasonal factors for employment growth.
The reputation of the ABS was dealt a mortal blow last year following problems with the labour force survey. Investors need to keep that in mind when we interpret these latest results. The truth is, the numbers confirm the underlying economy is growing at a solid clip.
Obviously this changes the outlook dramatically for the Australian economy.
So much depends on consumer spending given that mining investment will fall sharply over the course of this year. Strong jobs growth and rising job security make it much more likely that already solid consumer spending can lift further in 2015. It will probably be a very good year for retailers, and of course the housing market. Going on the current trajectory, it will be another good year for the economy but a lot will depend on confidence and how obstructionist policy makers are this year. They can hardly be said to have been a positive influence on the economy so far. That will be doubly so if Australia’s army of economic loons get their way and the RBA does cut again. Such an action would merely testify to the failure of policy to buttress growth.
Is this jobs trajectory at risk? Well, over the next two months (January and February) it will be normal to see both a seasonal slump in jobs growth and a lift in the unemployment rate. The current strong trajectory of jobs does suggest that this normal seasonal pattern may be much weaker this time around, although I still think the ABS will be under enormous pressure to produce weaker statistics to reflect the consensus view.
What we shouldn’t expect to see, and what wouldn’t be believable if we do, is some sudden change in underlying jobs growth. Housing construction is surging and retail spending has picked up sharply. Similarly, exports are strong and non-mining business investment has turned. The economy is doing well.
In terms of policy, it’s a genuinely tough call. Just on the data, there is no way the RBA would cut, yet it has done so before in the face of solid economic data. Policy is guided more by the exchange rate target and the reaction to what the major central banks do. The market is looking for a rate cut as are an increasing number of economists, yet there may be no advantage in such a move following the oil price slump (Does the RBA really need to cut rates, January 6).
It really does boil down to how badly the RBA wants to try and lower the exchange rate, and what it is willing to sacrifice (confidence, financial stability, economic efficiency and productivity) trying to achieve that.