The Good, the Bad and the Ugly (Sep jobs edition)

These three charts summarise the state of the labour market — and the September employment report.

The good news is that the trend in hours worked is firm — in typical cycles hours pick up first, then job ads, and finally employment.


The bad news is that we are still seeing job losses at a decent clip — the chart below shows that the September gross flows data revealed a spike in transitions from employment to unemployment. The monthly data is noisy, but an uptrend in separations to unemployment is clear.


The ugly is the decline in the employment to population ratio. The decline in participation has been hiding the weakness in the labour market. It’s tough to find a job, so folks have quit looking for one.


I think there’s decent prospect that the upturn in the interest rate sensitive sectors will eventually lift employment. The hours worked story is a nice lead, and the flattening out (after a hug fall) of job ads is very encouraging.

It’s too early to be sure that the unemployment rate has peaked, and there remain troubling parts of the jobs report, but without an ongoing rise in the unemployment rate it’s hard to see the RBA cutting again.

Following this report, I put the odds of a cut this year at less than 20%

Posted in AUD, economics, monetary policy, RBA | Tagged | 11 Comments

McCrann riffs on Yellen

The Sun’s Terry McCrann has published a great column on the nomination of Yellen and what it might mean for the AUD. The AUD bottomed in early August at ~89c, and has rallied back to ~94c due to the fed’s easier stance, the improvement in Chinese data, and the post election confidence pop.

Given the amount of pessimism out there regarding the AUD, it seems possible that it will break above 95c on nothing more than positioning (grinding out the haters). The move so far has been broadly in keeping with a recovery of AUD commodity prices, but another 5c higher, as McCrann contemplates, would constitute an unwelcome tightening of financial conditions, and may well undo the post-election elation we’ve seen.

In that case, it seems unlikely that 1.00 for the AUD and 2.5% for the cash rate would stabilise the unemployment rate and keep inflation around 2.5%.

McCrann says it is too early to think about a November cut, and i think he’s right – but if monetary conditions tighten, confidence slips, and house price appreciation slows (it may merely be a reset higher in price due to lower rates), it’s easy to see another cut in Q1’14.

Regardless of if 2.5% is the cash rate low, i think it’ll be a long time before we see cash rate above 2.5% (earliest hike looks like 2015 just now).

The RBA would have to contemplate whether than mix is sufficiently positive for the economy that it overrides the negative impact of a dollar at or near parity.

But if not, if unemployment heads back over 6 per cent, it would grit its collective board teeth and cut its official rate.

It doesn’t want to cut further. It does not want to further hit savers, nor provide more fuel for property buying.

But it will if it has to; and a broad brush, a dollar at parity, it would probably have to.

It would also then likely contemplate imposing quantitative restrictions on home lending. Like a minimum deposit requirement.

Posted in AUD, FOMC, monetary policy, RBA, USD | Tagged , , | 23 Comments

troublesome t-bills

Last night’s four week US T-bill auction result was a little odd.

The auction of US$30bn of four week paper was well enough covered (~83bn of bids v. ~30bn of paper), however the results reveal a fairly large change of sentiment.

Typically, these bills are better than cash, and so trade at a lower yield than the overnight fed funds rate — however there was no-one willing to bid below fed funds at this auction (the low bid was 15bps, the median 25bps and the high bid 35bps).

usTbillsA lower 3m rate relative to the 1m rate suggests that the `market` thinks this will be temporary, however the fact that this yield spike has been larger than the similar spike in 2011 (when we last had a debt ceiling debacle) suggests to me that there’s a little less confidence in a solution this time (note the data is from FRED, with today’s closes from Bloomberg as FRED is one day behind).

Posted in Bond Market, economics, monetary policy, US politics | Tagged , | Leave a comment

Dear Illuminati …

Sometimes xkcd just nails it …


Posted in US politics | Tagged | 3 Comments

Shutdown crashes US confidence

According to Gallop’s daily survey, US economic confidence has crashed as a result of the government shutdown. The FOMC decision not to taper is looking like a good one.


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RBA sees policy gaining traction

The October RBA Statement had only a few changes from their September statement.

Overall, my assessment is that there is one big change, and that is to the financial conditions paragraph. The addition of a line that savers are taking more risk on the asset side amounts to an assertion that the influence of prior easing is still increasing. Risk taking on the asset side is one of the key channels through which monetary policy works (lower risk free returns, and folks will demand fewer low risk assets, and the flow of funds into riskier investments will boost growth). Continue reading

Posted in AUD, monetary policy, RBA | Tagged | 12 Comments

Yawning PCE gaps lead to low inflation

The monthly US PCE report is one of my favourite.  US consumption is not just a bit part of the US economy, but a big part of the engine that has driven global growth these past few decades.


The August PCE report had a few okay signs, but was mostly in the realms of ‘not good enough’.   The trends remain ‘too slow’ PCE growth: an output gap found by passing a line through historical growth shows that the difference is getting larger — not what you want at this stage of the cycle.

My guess is that this very large ‘demand gap’ is a decent part of the reason that global inflation remains low.

On this subject, the August PCE report showed still-tame inflation.

Headline PCE inflation picked picked up 60bps to a 1.7% AR pace in August, and volatile prices were not a large part of the story (ex food and fuel was 1.9% AR, while trimmed mean PCE was 1.6% AR).   After peaking early in 2012, trend inflation pressures have eased markedly (the 6mma AR is 1.1%y/y, and the annual pace is 1.2%).


Trimmed mean PCE inflation was 1.6% AR on the month, taking the 6mma AR down 10bps to1.2%% (YoY 1.3%).  That’ a very low (broad based) inflation pulse.


All told, i think that inflation pressures are too low for the FOMC to contemplate tightening policy. indeed, i think it was a mistake to discuss tapering at all — without the 85bn/m of bond buying, growth would be slower, unemployment higher, and inflation lower.

Posted in economics, FOMC, monetary policy | Tagged | 13 Comments

Github for work and play (multiple accounts)

If you’re not using github, you should start (see my intro for tips on getting going).

One of the things that is likely to happen once you do get started is that you will want more than one account. This is may be because you need a work account and a personal account — or perhaps you have projects that need to be kept separate. Either way, multiple accounts are the thing.

This post is aimed at helping others to set up multiple github accounts (and to serve as a record for when I need to do it again). To get started, you will need to create a repo (see my tutorial if you are stuck at this step).

Continue reading

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Taper-off … Taylor Broken

The Federal Reserve’s decision NOT to announce a slowing of the pace of their asset purchases at their September meeting caught the market by surprise. Even with Bernanke’s prior guidance that “asset purchases are not on auto-pilot”, and that the policy was data dependent, few guessed that the economic weakness would stop Sep-taper (I made the same error).

In my view, the most interesting part of the decision was not the decision to continue buying at 85bn per month — it was the 2016 projections. Continue reading

Posted in economics, FOMC, monetary policy, USD | Tagged , | 16 Comments

learning from Lehman

This is the five year anniversary of the collapse of Lehman Brothers, and the steady stream of retrospectives has given me cause to think back on my own journey.

There is little doubt that my views have changed substantially over the subsequent five years — mostly with regard to the potency of policy, and therefore the appropriate place of policy markers.

I started the period with fairly dry views: I was on the dry side of the mainstream for academic economists (the academic I most admired was Tom Sargent), and well outside the (Keynesian) mainstream for a financial market economist.

For example, I doubted that either fiscal or monetary policy had important impacts on real variables over meaningful periods (say longer than five years), and was fairly sure that the impact of fiscal and monetary policy was small even over shorter periods … I no longer hold these views.

Continue reading

Posted in academic economists, economics, monetary policy | Tagged , | 9 Comments