The monthly labour market report has a way of making fools of people — but in the last two months i think it’s mostly made a fool of itself.
At the margin, it has made me think that the RBA is more likely to resume cutting in 2013 (i had been thinking that would not come until 2014 when mining investment tailed off) — but it’s only a marginal change. Employment to population rates remain low, and my hunch is that this means we will see further softness in wages and therefore non-tradable inflation.
The balance of supply and demand in the labour market is in about the same shape just now as it was in 2009 — only this time the housing market isn’t on fire (due to government handouts) and we don’t have a mining investment boom coming.
It seems unlikely to me that employment either rose by 74k in Feb or fell by 36.2k in March. As always the trend (12.6k/month) is more likely closer to what’s happening — after abstracting from seasonal factors etc.
Looking at both hours worked (which declined by 0.3%m/m) and employment, the bottom line remains that labour demand is weak. It’s neither so terrible that the RBA must cut rates right away, nor good enough to stop the unemployment rate from rising.
In trend terms, it looks like things have turned up a little — however once one takes into account the growth of the population (and hence of the labour force) it’s fairly clear that there remains plenty of slack in the labour market.
I think that the above chart — showing the change in the proportion of the population that’s employed in each class best tells the story. Full time jobs are being lost and part time jobs are basically holding in there.
As men tend to have full time jobs and women part time jobs (on average) this is showing up as a trend increase in the male unemployment rate. I suspect that this also reflects the fact that men are more likely to be engaged in Manufacturing and Mining — sectors which are presently under pressure.
With the AUD at multi-decade highs in trade weighted terms, it seems likely that the pressure on these sectors will remain (it may even increase). Given this, it seems more likely to me that the unemployment rate will keep heading higher — and if that happens, they will most likely resume cutting the cash rate at some point.