Not wrong for long – employment data shows more weakness coming

September 9, 2011

RBA and Interest Rates

Yesterday I said I was happy to be wrong on the GDP data but warned about the historical nature of the data (not trying to be disingenuous remember) meant that we needed to look to the here and now. In truth I had hoped this feeling of wrongness would persist for a little longer but with the employment report due out it was at risk of being ephemeral.

Source: Billy Blog Still having database problems.

And so it was with the ABS reporting that employment in August fell 9.7k and the unemployment rate rose from 5.1% to 5.3%. The quarterly measure of under-employment (those people who want more work but can’t get it) rose to 12.3%.

These were widely trumpeted as “surprise” numbers but it will be no surprise to our readers that the employment data yesterday was on the weak side. We take no joy in this, obviously, but we have been presaging this for months based on read of the economy particularly the leading indicators such as the employment sub-component from the NAB business survey.

I’m not going to launch into a critique of how other forecasters and economists can say that yesterday’s data was a surprise but I would simply note that the constant focus on one month’s data and the flip-flopping of views based on the latest outcome is I think where some go wrong. We always look at the trend first and foremost and then what the data point adds or subtracts to this trend.

Unfortunately on that front yesterday’s employment report suggests a deterioration of the labour market in Australia and an acceleration of that deterioration. Now we must say that historically an unemployment rate of 5.3% is still low but add to this the under-utilisation rate of 12.3% and you get a sense that the market is nowhere near as tight as the raw headline unemployment number would suggest.

This is one of the reasons we didn’t buy the 5% Pavlovian wages breakout RBA knee jerk rate hike talk that was so much a feature of interest rate discussions in Australia over the past year or so since the RBA released their famous (infamous?) Phillips curve paper. Our take has always been and remains that the structural shift in savings combined with the large number of households that aren’t making as much money as they want to, as represented by under-employment, is what is restraining the Australian economy both now and into the future. Equally now that real fulltime jobs are being lost (35k last two months) concerns over job security will increase and with that confidence will take another hit. Add to this the ructions, risks and uncertainty offshore and you have a recipe for more weakness.

I hope not but I fear so.

The implications for the RBA are that they don’t want to ease but increasing they will be lead in that direction by the Australian economy. When will the first easing be? Perhaps February – which is two CPI releases away and many many more employment reports.

This blog is for information only and does not constitute advice. Neither Greg McKenna nor Lighthouse Securities has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

If you do need economic, investment or financial advice we are happy to help.

Please Email the team at Lighthouse at or Greg directly on

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One Comment on “Not wrong for long – employment data shows more weakness coming”

  1. tristencosgrove Says:

    It is healthy that you allow for the prospect that your analysis is wrong. I think you are more right than wrong and the world has more to go along this path of the last four or more years since the pesky “credit crunch” evolved into an (almost) global sovereign debt crisis and (almost) global economic downturn. Thank goodness we live in Australia!


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