Jobs growth is at a 20-year low and compounding this is where the loss of growth is coming from, as the change in full-time employment over the past three months has remained in a deep downward trend. Yesterday’s 22,600 loss of full time jobs can be taken in two ways.
The results were an outlier, as December tends to be a slower growth month and they could be a correction to the upswing in November and a retrospective to the general feeling in the economy. Or, the results showed a deeper malaise in the market and the retrospective results are actually a symptom of the broader economy.
What is also weighing on the results is the participation rate which is stuck at a seven-year low. If you raise the participation rate to the mean average of the past five years of 65.4%, the unemployment rate would be well into the 6% level, with some even suggesting the real unemployment rate is actually over 7% as the amount of people dropping out of the employment market is at accelerating.
However, we must remember that the participation rate is a structural measure as the ageing population has a larger effect than ever before, with more and more baby boomers retiring ahead of time.
But if the final statement is indeed true - the RBA Board meetings in February and March will be very interesting. The rates debate is ramping up again and the movement in the AUD shows the market is leaning back towards a possible rate cut in 2014. The green shoots the Board has been alluding to over the past seven meetings must be tested.
Retail sales remain benign, housing starts are sporadic and the non-mining sector, the so-called ‘bright spot’ that is expected to pick up the slack from the slowing mining sector, is yet to even register the kind of job creation the Board is looking for. I don’t think yesterday data will be enough to sway the RBA, however I do believe the easing basis that has been concreted to the base of every RBA statement in 2013 will remain, and may even be reworded to have a slightly more dovish tone to jawbone the economy; all eyes will be on February 4.
If you are looking to trade the current economic moves, the one to watch is AUD/NZD. The key to this pair is the central bank differentials; the pair fell almost two full cents to $1.053 at the low on the jobs data. With the prospect of rate hikes in New Zealand on housing and inflation concerns, and Australia now on rate cut watch, the central bank differentials do lend to the suggestion of parity and lower for the pair - something most though wasn’t possible. AUD/NZD will be one outside of the major trading pairs to watch over the coming year.
Ahead of the Australian open
Before the 10am bell (AEDT) we are calling the ASX down only seven points to 5302. Yesterday’s trade was the strongest of the year and should see the market rounding out the week slightly softer to continue the downward start to 2014.