Australia | Feb 12 2009
By Andrew Nelson
Defying all predictions, the seeming resilience of the Australian employment market has continued to surprise to the upside. But there are many who think today’s upbeat read is due more to faulty data than improving conditions.
Today’s data showed that overall employment increased by 1.2k in January, largely driven by a 33.7k improvement in full-time employment, which was somewhat offset by a 32.6k drop in part-time employment.
TD Securities Senior Strategist Joshua Williamson recommend we don’t get to carried away with the seemingly good news. He notes that with every market economist expecting a large fall, the small increase was completely out of sync with other partial data sets and the evidence of many companies laying off workers since the financial crisis took a turn for the worse late last year. In short, he thinks the read is misleading.
With growth in the labour force now outstripping employment growth, the unemployment rate ticked up to 4.8% versus market consensus of 4.7% and is now at its highest level since mid-2006, a far more significant fact. This was partly due to the participation rate increasing from 65.0% to 65.1%, going against expectations for a decline to 64.9%.
Westpac analysts also point out that annual jobs growth also moved below 1% in January, down from 1.3% in Dec and well off the 2.8% rate of a year ago. This along with the jump in the unemployment rate will almost certainly catch the RBA’s attention, the bank’s analysts surmise.
ANZ Banking Group economist Riki Polygenis said that while the rise in unemployment is of concern, policymakers may take some comfort from the stronger than expected employment figures. This may add to the case for the RBA scale back the pace of easing, particularly in the light of the significant fiscal stimulus to come through, she thinks.
But here, we once again hit the problem with the dependability of the data itself, with Polygenis pointing out that there is significant volatility in the monthly labour force series, particularly following cutbacks in the sample size in the middle of last year. This presents a major problem, notes Williamson, who expects the currently positive headline result to be unwound with interest in coming months, as he is convinced the upbeat read is actually far from the underlying truth.
“The longer the data takes to reflect the evidence coming from other sources, the harder the fall will be,” he predicts.
He remains convinced that the extremely weak nature of business activity and consumer confidence data, in combination with a more thorough easing of inflation pressures will see a continuation of the assertive easing policy.
While he admits these latest data could influence the timing and magnitude of the RBA’s future easing path, he thinks it would be unlikely given the insubstantial nature of the data. Unless, of course, the RBA Governor was looking for a reason to modify the time path of policy away from the aggressive easings to date.
Westpac also expects the labour market will continue to weaken at an even more rapid pace in the June quarter, which it says is consistent with various forward indicators of the labour market that have taken a decided turn for the worse over the final months of 2008.