The Jan jobs report caught the market by surprise, with the unemployment rate falling ~14bps to 5.08% (mkt 5.3%). Given the size of the standard errors, we can be about 75% confident that the unemployment rate actually did decline in January, and extremely confident that it is lower now than it was in q3 (when it peaked at ~5.3%).
The jobs numbers are a joke – but for those that care it was +46.3k (mkt +10k). We can be about 75% sure that the number of (seasonally adjusted) jobs rose in January.
The errors get larger as we break the survey up, however one split I regard as worth the effort is the male full time unemployment rate. This declined 10bps, to 4.9% and is now 40bps below the August peak.
The hazard and exit rates, from the matched sample (gross flows) data show that the probability of an employed person losing their job has fallen back to pre-softpatch levels, and that the prospects of an unemployed person finding a job have improved somewhat.
So all three of the bits that are well measured – and the jobs number – confirm that the labour market is improving. This should not surprise, as it is consistent with the bulk of leading employment indicators.
On balance, the evidence suggests that the unemployment rate is at least steady at ~5.25%, and probably declining. And if the unemployment rate is not “rising modestly” before “declining modestly over the latter part of the forecast period” then the RBA is going to have to bring forward that 25bps acceleration of core inflation (to 2.75%) from H1’14.
An earlier acceleration of inflation means that they need to think about being tighter than 4.25% a little earlier. This makes further cuts unlikely – unless the unemployment rate spikes up again, or the inflation rate is lower than expected.
This conclusion fits neatly with a good rule of thumb for RBA policy – the RBA moves their policy rate when the unemployment rate is moving, and in the opposite direction.
So if the unemployment rate does not start rising again, the RBA almost certainly will not be cutting their policy rate any further.