What’s the main lesson from the February and March labour market statistics? That individual monthly seasonally adjusted numbers jump around too much to be taken very seriously.
That’s why the Australian Bureau of Statistics publishes the trend series at the top of the page and the seasonally adjusted bungee numbers below it.
Nevertheless, the seasonally adjusted numbers make much better headlines and give market economists more to talk about. February: surprise jump in jobs. March: surprise slump in jobs. And so on.
Except that the slump reported today is not a surprise. Nobody, not even Wayne Swan or Joe Hockey, believed February’s alleged 71,500 surge in employment. Everybody expected some retracement in today’s numbers but the commentariat was too timid on the scale, the average guess being the loss of just 7500 jobs.
As it turns out, March’s 25,900 drop in seasonally adjusted employed is hardly surprising after the February rocket. Similarly, the drop 5 million hours worked in March sounds a little frightening – but that’s after reported jump of 11.3 million hours in February.
Thus picking employment number movements to the nearest 10,000 remains one of the least successful things to attempt with crystal ball, tea leaves or job ad surveys.*
The not-surprising real story is in the darker trend line of the graphs accompanying Glenda Kwek’s report, not the volatile seasonally adjusted shadow: Employment continues to rise slowly and so does unemployment, as predicted by the Reserve Bank and Treasury.
The current 5.5 per cent unemployment rate (trend series, of course) is what the official family guessed it would be at by the middle of this year. So, of itself, that rate should not frighten the horses.
It’s the expectation of such a rate that has monetary policy loose and staying loose for as long as anyone can usefully imagine. It’s why the “rate rise for Christmas” story is unlikely to be true.
The labour market is soft and it’s staying soft. The official family continues to bet on low interest rates eventually stimulating consumers and housing builders a bit more to pick up some of the growth slack as the construction phase of the resources boom first plateaus and then eases. A soft labour market prevents inflation taking hold and makes the aforementioned low interest rates possible.
The RBA has been looking, somewhat wistfully, at the indications of lower rates starting to work. Retail sales have improved for January and February and, anecdotally, March seems to have been all right as well. Motor vehicles sales continue at record rates. Building approvals figures have mostly been rising, even though new housing completions have not.
Business conditions, as reported by NAB, are poor but business confidence about the outlook is up. Consumer confidence, well, that’s another story that seems overwhelmingly political.
The downturn in capital investment outside the resources industry remains a worry, something that will keep the labour market weak. But a fair reading of the present numbers doesn’t point to an employment cliff that might scare consumers into their shell – unless you work really hard at it.
* For all those who got it wrong today, RBA governor Glenn Stevens made the defence case for economic forecasting in a footnote to yesterday’s speech:
“In aviation and, I imagine, in sailing, a good weather forecast is invaluable. My observation is that those weather forecasts are actually pretty good. Unfortunately, the same cannot be said for forecasts in economics and finance. This doesn't mean we don't set out on the journey – we have no choice – but it means we should do so with due care.”
Michael Pascoe is a BusinessDay contributing editor.