US payrolls on Friday were certainly disappointing, rising only 80,000 in June compared to the market’s forecast for 100,000, and risk was taken off the table as a result. At this stage it’s best to look at this dip in momentum as temporary. We have after all seen such dips numerous times throughout this recovery after all. These slower episodes are not unusual and have never signalled changing economic prospects; stall speed or what have you. Jobs growth, the manufacturing indicators, have always bounced backed. I’ve outlined in my Eureka Report column over the last month or so why this is the case. Put simply, the structural and cyclical forces driving this recovery have not changed.
This is why there are other aspects of the jobs reports that signal improvement. In the payrolls survey for instance, both hours worked and earnings increased for the month. Then the household survey, on which the unemployment rate is calculated, shows employment growth of 128,000 in June, after a 422,000 increase in the month prior. Under the payrolls survey, 225,000 jobs have been created over the last three months, which is soft. Having said that, the household survey shows that 400,000 jobs have been created over the last three months, almost 800,000 so far this year and three million over the last year – which is strong growth. How this is usually resolved is that the payrolls jobs figures are revised higher over coming months, so June’s 80,000 print may end up being significantly stronger.
It is for these reasons that I think global policymakers have succumbed to hysterics. There are downside risks for sure, but there are also significant upside risks which they don’t seem to be aware of. Recent history has shown that excessive worry over the global recovery has proven to be misplaced – policymakers should be aware of that but they don’t seem to be. Doomsayers have been wrong, in other words. The Fed and the BoE have, however, usually taken these opportunities to monetise more debt. That is their task. Nevertheless, in seeking to ease the debt burden of their governments, central banks are increasingly destroying confidence and harming the recovery. We saw that last week when the BoE, ECB and PBoC all provided more stimulus.
Similarly, we have seen it in Australia following the RBA board’s ill advised easings. I have been highlighting for some time how the RBA board had pretty much ditched economic analysis in making decisions to ease. This is a view seemingly confirmed or at least hinted at by a former RBA board member, professor Warrick McKibbin, who highlighted over the weekend that recent appointees to the board were made "because they had some affiliation with the Labor party; let’s be honest about this.” (He also said that he could see the pressure that was being applied for lower rates from lobbyists.) If we’re hearing that from a former board member then it would seem to confirm my suspicions that the RBA board's decision-making process is corrupt. No more corrupt that the BoE and the Fed I guess, but we don’t need to play follow the leader do we?
By the by, it’s a terrible legacy, isn’t it? You can’t help but be left with the impression that the entire global financial system – central banks, regulators, investment banks the lot – is steeped deep in a culture of corruption. Alan Kohler wrote a great piece last week on the manipulation of Libor (Interest rates: a world of manipulation, July 4), but it goes beyond that and it’s not looking like it’s just a bit. Another investment bank is being investigated for manipulating energy markets – and this is just what we know of. It truly is no wonder that the financial system is the source of so much economic instability. Corruption is not okay, no matter how slight or insignificant it may seem and people of goodwill need to stand up against these practices. You want to see where corruption eventually leads? Go to Africa – or Greece.
In this environment – the confidence destroying actions of central banks – I don’t hold high hopes for Australian confidence indicators out this week. With above trend economic growth, historically low unemployment and thus far soft tradeable inflation, we should be a very happy bunch. We’ll find out what business thinks with NAB’s business survey tomorrow (for June) and then we get an update on July consumer confidence on Wednesday (1030 AEST). Other data for Australia includes May home loans on Wednesday 1130 AEST) and employment on Thursday. The market looks for no change in employment in June following a 46,000 increase in May. The unemployment rate is forecast to rise to 5.2 per cent from 5.1 per cent. Other than that, the RBA’s deputy governor gives a speech on Wednesday (0900 AEST) and another on Thursday (1000 AEST).
Looking abroad, key US indicators include consumer credit tonight, trade on Wednesday, the FOMC minutes Thursday and the producer price index on Friday. Nothing earth shattering as you can see, so we’ll no doubt be dealing with fears over a global slowdown for the remainder of the week.
Adam Carr is a leading market economist. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.
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