US jobs data and the RBA

The November jobs numbers in the US on Friday were somewhat disappointing. Non-farm payrolls rose a tepid 120,000 after rising 100,000 in the prior month. The spectacular drop in the unemployment rate - to 8.6% - lost all its gloss once one took note of the participation rate - it dropped to just 64.0% to be at a 25 year low. Making matters more problematic for the labour market is a drop in nominal wages in the month. The recovery in the US remains floppy.

While it is good news that some jobs are being created in the US and the job destruction during the great recession, something close to 10 million jobs need to be created over the next couple of years to get the US back to the dynamics of 4.5% unemployment with a 67% participation rate. This means quite simply that 100,000 to 150,000 jobs per month is not good enough to absorb the massive spare capacity in the US labour market.

In terms of the RBA meeting on Tuesday, a 25bp cut is 96% priced in. In other words, it is all but a done deal. The Chinese PMI data for the services industry released yesterday shows a collapse in that section of the economy and will only encourage the RBA to cut.