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Saturday, 3 December 2016

US unemployment lowest since in nine years (4.6pc)

Pushing on a string 

It's become popular to argue that in Australia interest rates aren't heading lower in this cycle because low rates don't work (just 'cos...).

Yet the evidence from overseas, to me at least, seems to suggest that low rates have been working, albeit gradually. 

In the UK, for example, we've seen the unemployment rate fall from 8.5 per cent to 4.8 per cent.

That said, while I'm no expert in inequality, it's been clear to see that investment, jobs growth, house price growth - in fact growth in almost everything - has been skewed towards London and the south east at the expense of the regions. 

In turn, this is leading to swathes of disaffected voters, and all the political implications thereof. 

I'm not very familiar with the US, but I imagine a similar story could be told, with stock markets soaring to record highs and the gains in wealth being share iniquitously. 

Anyway, a 60-second look at the latest US jobs report from the Bureau of Labor Statistics...


Employment increased for a record 75th consecutive month, with nonfarm payroll employment up by +175,000, broadly in line with expectations. 

The results for September (+208,000) and October (+142,000) were revised up and down respectively, the twin revisions netting out to 'not a lot'. 

Over the past three months employment has increased by +176,000 per month on average. 

The recovery may not have been spectacular, but it sure has been consistent: over the past 81 months since early 2010, total employment has increased by +15.6 million. 

As you can see in the chart below the pace of employment growth has eased back this year, from the rollicking pace of 2014, but the average gains per month have been strong enough to keep downward pressure on the unemployment rate. 

Over the first 11 months of 2016 employment growth has averaged ~180,000 per month, which remains well ahead of the estimated rate required to keep unemployment low and stable.

Unemployment rate lowest since 2007

The unemployment rate dropped from 4.9 per cent to just 4.6 per cent, the lowest level in the nine long years since August 2007. 

The number of unemployed persons per job opening is also now close to its lowest level since the recession, suggesting that slack in the labour force is declining.

Interesting to consider that with the unemployment rate this low, it's being debated whether the appropriate policy response is a splurge of spending on infrastructure (investment in infrastructure, of course, is a sound idea, but a debt-fuelled splurge may not be the way to go). 

Earnings blip

All payroll reports have their weak aspects and this one was no exception.

The composition of employment growth hasn't been great lately (part time employment), while average hourly earnings declined by 3 cents in November to $25.89. 

This takes the annual growth in average hourly earnings back down to under 2.5 per cent from 2.8 per cent in October.

The wrap

Broadly in line with expectations, and so it's expected that rates will be hiked in December.

The Aussie dollar is now being 74.5 US cents.