The January labour force release was a rip-snorter – employment up 46,300, the participation rate up 0.1% to 65.3% and the unemployment rate down from 5.2% to 5.1%.
It makes an interest rate cut in March impossible to contemplate on domestic grounds. We will need to see some global market horror unfold for the RBA to go.
That said, the bottom line is that the labour market is probably still a little soft as it reacts to the last couple of years of sub-trend economic growth, with the employment gain in January catching up from the two prior months where (a revised) 41,000 jobs were “lost”. In other words, employment is up only 5,000 or so in the last three months which is very soft and a critical reason why the RBA cut rates late in 2011. A few monthly rises in employment averaging 15,000 or so are needed to keep unemployment around 5%.
Speaking of unemployment, the 5.1% rate for January is stunningly low. There have been only 3 occasions in the last 34 years (since 1979 actually when monthly data first captured a January reading) that the unemployment rate has been lower than 5.1% in a January. That makes the employment result all the better.
The numbers also re-engage the rhetoric and actions of the Government (we “will deliver a surplus in 2012-13”) and the RBA (on hold last week) as they clearly have had a superior read on the economy that most of us outside the official family.
I wont make a guess on this just yet, but what are the odds the upside economic surprises hand the government $5 billion or more per year extra to the Budget bottom line when it frames the Budget in May?
Obviously the case for lower interest rates remains somewhere on the radar, but it is rapidly drifting to the edge and with another couple of results like we saw today, or if what we are seeing in the monthly inflation numbers is replicated in the official inflation data in April and nothing worse comes from global markets, it will disappear altogether.