Wednesday, 7 March 2012

Employment drops in February - C'mon RBA!

The monthly volatility, plus revisions, make reading individual moves in the labour force very difficult.  It doesn’t make it impossible, nonetheless, to make well informed judgments about the health of the labour market.

Employment fell 15,400 in February after rising 46,200 in January and falling by a total of 40,900 in the final two months of 2011.  A quick calculation shows that the level of employment is lower now (February) than it was back in March 2011.  

The unemployment rate, which is very much an artifact of the participation rate (or is that the other way around), rose to 5.2% from 5.1% in January with the participation rate dropping to 65.2%.  The unemployment rate has been stuck at a little above 5% for more than a year.

The data continue to show a sub-trend growth performance for the economy – one that needs a monetary policy boost.  It's simple to cut rates and it is free - i.e., there is no budget impact at a time when it is important to lock in that surplus for 2012-13.   To reiterate the words in recent blogs, with fiscal policy remaining tight and subtracting from growth, the RBA needs to move interest rates to an accommodative stance. 

The RBA remains starry eyed about the resources boom (fair enough), but it allows this infatuation to distract it from looking at the big picture sub-trend softness in the economy.

Global growth is weak; inflation is low; Australian GDP has had almost 4 years muddling along below trend; asset price deflation remains for houses and stocks and credit conditions are at best mixed.

There seems little doubt now that the RBA will cut in April.  Had it had the GDP and jobs numbers when it met on Tuesday morning, it may have cut then.  Whatever. 

Monetary policy needs to move to an accommodative stance and a further 25 basis points will not be enough.  There are good and growing reasons why the RBA will need to cut towards 3.5% sooner rather than later.  Today’s numbers escalate that need a bit more.


  1. 'with the participation rate dropping to 65.2%'

    Pretty much sums up how underinflated the actual unemployemnt numbers are.

  2. isn't the RBA now largely irrelevant on monetary policy?
    ANZ is the new RBA.

  3. May 2010
    Unemp rate 5.2%, Participation rate 65.2, underutilisation rate 12.3% Total jobs 11,172,200
    Feb 2012
    Unemp rate 5.2%, Participation rate 65.2, underutilisation rate 12.5% Total jobs 11,444,000

    In the intervening period the unemp rate hasn't moved above 5.3% or below 4.9%; the participation rate hasn't moved above 66.0 or below 65.2 and the underutilisation rate hasn't moved above 12.6% or below 11.9%. Yet an additional 271,800 jobs have been created.
    I simply don't accept that that scenario forces the RBA into moving on rates.

  4. There's no doubt a lot of labour markets are currently soft, and I agree the case for serious interest rate easing is currently strong.

    That said, lets put this in perspective. A participation rate over 65% is very high both by historic standards and across international comparisons. One of my pet peeves is people of both Right (whinging about "welfare dependency" and the like) and Left (whinging about "disguised unemployment") who rabbit on about participation without acknowledging that a bigger proportion of the Australian population is now in paid work than ever before in the nation's history.