As economists are often wont to say, the March labour market figures are decidedly ‘noisy’.
The unemployment rate is down (a 0.2 percentage point drop to 5.8 per cent), but so is the participation rate (also slipping 0.2 of a percentage point to 64.7 per cent.
So, jobseekers were more successful last month, but there were proportionately fewer of them.
In addition, the Australian Bureau of Statistics tell us, more than 22,000 full-time jobs were lost, offset by the addition of more than 40,000 part-time positions, to push the aggregate hours worked in the month up by eight million.
A review of recent jobs data shows these numbers have been volatile. Until last month, the unemployment rate seemed to be on an inexorable rise. After hovering around 5.7 to 5.8 per cent for most of the second half of 2013, it climbed in quick succession to 6.1 per cent by February.
Over the same period the participation rate slid down to a seven-year low of 64.5 per cent (in December 2013) before jumping to 64.9 in February and settling a little lower last month.
The trend measure, which is offered as a way to ‘see through’ the monthly volatility, says the unemployment rate held steady last month at 6 per cent, and the rate of increase has slowed and may be levelling off.
Looking at the labour market through the prism of demand for workers, the ANZ job ads series suggests more employers are looking to add staff, which would be a concrete vote of confidence that better times lie ahead.
Turning points in indicators of economic activity often seems to be characterised by a period of volatility before a definite direction asserts itself, much like a sail that momentarily flaps in the breeze as a ship changes tack.
Often such turning points only become really apparent with hindsight.
But other evidence suggests that jobless rate might not have much further to climb, bringing the prospect of an interest rate hike into sharper focus.
Retail sales are firming (strong monthly gains in December and January were consolidated in February), building approvals are up more than 23 per cent from a year earlier, and business conditions and confidence are improving.
But the recent appreciation in the exchange rate (the Australian dollar surged to US94.3 cents following the release of the jobs data) is a clear risk for the RBA, which has been keen to see the currency lose much of its altitude.
Today’s activity shows the currency markets are primed to exploit even the hint of an increase in the interest rate differential between Australia and the US, where confirmation by the Federal Reserve of a US$10 million cut in bond purchases under the quantitative easing program saw the greenback lose ground.
The stronger $A will also hamper the shift in the economy away from resources-led activity toward other sources of growth, possibly prolonging the nation’s lacklustre GDP performance.
A turn in the labour market, if that is what this proves to be, is unlikely by itself to convince the RBA Board to hike rates – particularly while wage inflation appears so tame.
A more probable prompt for a rate rise would be increasingly uncomfortable signs of heat in the housing market, particularly credit growth. So far, the warning signs on this front are amber, rather than flashing red.
Tag Archives: retail sales
As economists are often wont to say, the March labour market figures are decidedly ‘noisy’.
There’s a bit of a reality check for Australian retailers in today’s retail numbers regarding how well they are doing tapping into the burgeoning online shopping market.
The bottom line message is, not well.
For the first time, the Australian Bureau of Statistics has released a time series of estimates of online retail turnover in Australia, and they show that domestic online shopping accounted for no more than 1.9 per cent of total retail sales through most of 2013.
More alarmingly, given strong international growth in online shopping, among Australian retailers online purchases as a proportion of overall sales barely budged over the period. If you are looking for strong growth, it’s not here.
This included both businesses set up purely as online traders, and those who operate an online shopping site as an adjunct to bricks and mortar outlets.
Of course, the main online competitive threat for many retailers comes from offshore, and unfortunately these numbers shed no light on that.
But as a barometer for how well local retailers are coping in meeting this threat, the figures are not particularly encouraging, especially when anecdotal evidence and inferences from things like parcel volumes suggest online shopping overall is booming.
Unsurprisingly, given this is a first off attempt, these numbers – which cover the period from March to September last year – come with plenty of caveats.
Firstly, they are only in original terms – the ABS says it will look to publish seasonally adjusted and trend estimates “in the future”.
Secondly, there will inevitably be revisions and changes to methodology, questions about sampling variability and so on.
But as a wake up call for local retailers about their lack of penetration into the online shopping market, they should resound through the industry.
The rate hike hares are running following evidence that shoppers are spending more freely and building approvals are back to levels last seen almost three years ago.
In a sign that the stimulus from low interest rates is sustaining an improvement in consumer outlook despite the soft employment market and federal budget gloom, retail sales rose 0.7 per cent in November to be up 4.6 per cent from a year earlier, while building approvals remained at their healthiest level in years, despite a small retreat from the previous two months.
The solid readings have led at least one prominent economist to predict the Reserve Bank of Australia will soon have to begin raising interest rates in order to ward off the risk of a surge in inflation.
Market Economics managing director Stephen Koukoulas said today the economy “is on fire”, and that the Reserve Bank Board should lift its cash rate when it returns for its first monetary policy meeting of the year on February 4.
The latest readings on the economy follow the release of figures last week showing the nation’s trade deficit narrowed significantly in the second half of 2013, a trend that is expected to continue as the completion of major resource infrastructure projects boosts the nation’s export capacity.
After reaching above $1.5 billion in mid-2013, the deficit had shrunk to little more than $110 million in November, and anecdotal evidence indicates there was strong growth in iron ore export volumes last month.
Adding to the picture, a Dun & Bradstreet survey released earlier this week indicated that business is becoming increasingly upbeat about its investment and employment intentions.
But worries about the health of the jobs market remain.
According to the Australian Bureau of Statistics, monthly job vacancies have been in a sustained decline since reaching a peak of almost 190,000 in early 2011. In November last year, the ABS reported, there were barely 140,000.
In its mid-year update on the economy, Treasury was downbeat on the labour market, predicting the jobless rate would rise to 6.25 per cent next financial year as the economy grew at below-trend rate.
But, as Kouloulas points out, the jobs market is a lagging indicator of economic activity, and the latest economic data suggest Treasury may have been too pessimistic.
For instance, between August and December it cut forecast dwelling investment growth from 5 to 3 per cent, though as it itself admitted, “finance commitments for new dwellings are now 12.4 per cent higher than a year ago and building approvals have improved noticeably from their trough in early 2012. Higher house prices could initiate a stronger investment response”.
The risk for the RBA is that, if it misreads the situation, a rate hike in the next month or so might puncture nascent optimism and slow or stall (at least temporarily) the recovery in non-mining sectors of the economy.
The risk is heightened by the Federal Government’s tub-thumping on the state of the Commonwealth Budget and looming threat of significant cuts in public sector spending.
In addition, raising rates could help reinflate the Australian dollar, something the RBA would be keen to avoid (one of this blog’s correspondents, @MrMacroMan, said that an RBA official speaking in New York overnight was “very clear on AUD risk and rates on hold”).
Yet, if analysts like Koukoulas are correct and the economy is taking off, an official interest rate of 2.5 per cent would obviously be inappropriate, and could sow the seeds of dangerous price pressures down the track.
As RBA Governor Glenn Stevens might say, the decision may come down to which is the path of last regret.
Fortunately for it, more evidence about the strength of activity is due to be released before the 4 February meeting, including finance and employment figures, as well as construction activity numbers.
In the meantime, markets are likely to be busily recalculating the odds of a rate move at next month’s meeting.