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Thursday, 12 February 2015

Unemployment rate to a 14 year high?

The ABS released its Labour Force data for January 2015 today, so let's jump straight in and take a look in 3 short parts...

Part 1 - Employment growth soft

If you can recall the December figures which I looked at here, you may remember that the seasonally adjusted surge of +37,600 jobs (including +41,600 full time jobs!) did appear a little too good to be true.

Certainly the Reserve Bank believed this to be so as it promptly chopped interest rates in February!

This month the headline seasonally adjusted figures showed employment decreasing by 12,200 and the unemployment rate raging higher from 6.1 percent to 6.4 percent, the highest rate of unemployment in nearly 14 years since Q2 2002.

Yikes! We'll come back to those odd-looking unemployment figures in Part 3 momentarily.

Plotted below is the long term total employed chart which demonstrates quite neatly that while total employment has still been growing, the rate of growth has been rather too slow.

Looking at the zoomed in seasonally adjusted data below I think we can now safely say that the seasonal adjustment mechanism is broken and the adjusted figures do not appear to make sense. 

The chart below shows that the "trend" figures have remained more reliable and the seasonally adjusted surge last month was yet another misleading signal.

The trend figures show jobs growth continuing upwards from 11,650,800 to a new survey high of 11,666,000 (+15,200 in the month) which is continued "growth" of sorts.

However employment growth is still too weak at only +1.41 percent over the past year - the size of the labour force grew by 1.85 percent and therefore unemployment is gently rising.

Note how the pace of employment growth has now been slow since around Q4 2010, and thus unemployment is steadily creeping higher over time.

Looking at jobs growth cumulatively, the seasonally adjusted surge in full time jobs growth also came back to earth with a bump this month.

In summary, jobs growth is looking soft, but not quite as soft as the seasonally adjusted result for the month suggested.

Part 2 - Employment growth by state

I've always faithfully reported the state level employment data series using the seasonally adjusted data, and will continue to do so here.

Perhaps we do need to be aware, though, that short term spikes and troughs may be misleading, particularly at the state level.

Rolling the cumulative employment growth by state figures forward to January puts Victoria back into poll position with +66,000 jobs over the past year, with Queensland (+34,000) and New South Wales (+21,000) next up (the NSW figures included some "Bizarro World" readings this month).

In trend terms, Queensland is relegated into fourth place behind Western Australia and New South Wales, while employment was essentially stone dead flat in South Australia, the Northern Territory and the ACT. 

The weaker employment growth clearly continues to reside in the southern states of South Australia and Tasmania, while Canberra and Darwin aren't looking too crash hot either.

In trend terms total employment fell only in South Australia this month - nevertheless this week a national television news outlet showed remarkable tenacity by yet again running a story about a fabled "Adelaide property boom".

Now sure, some indicators including a tightening market and improving housing finance suggest that 2015 should see see Adelaide record solid capital growth. Hobart too, in fact.

But a property boom? Please! 

The chart above shows that total employment South Australia has gone backwards over more than half a decade now and unemployment is rising - and very sharply in some regions, particularly those impacted by the shuttering of the automobile industry.

Solid capital growth this year for Adelaide, yes. Property boom, no!

Part 3 - Unemployment 

Moving onto the unemployment rate, the seasonally adjusted rate jumped maniacally from 6.1 percent to 6.4 percent in January.

The trend rate of unemployment ticked up very marginally from 6.27 percent to 6.28 percent, which clearly makes more sense. 

The uptrend in unemployment thus continues with thee total number of recorded unemployed persons in Australia now approaching 800,000.

The state level unemployment rates are highly unreliable but show Western Australia with the lowest rate of 5.6 percent, running all the way up to South Australia which has the highest rate of unemployment in the country at 7.3 percent.

Smoothing this data on a 4mMA basis makes a little more coherent sense, and shows that the trend in unemployment rates remains up, ex-Tasmania.

We probably don't need to re-cap here on what I have been warning about forever-and-a-day on this blog, only to note that a number of regional markets are showing alarming up-trends in unemployment.

I will look at the regional employment and unemployment trends in more detail, of course, later in the month.

Some property advisers are recommending investing in areas with extraordinarily high and rising unemployment rates.

You can pick some of those suburbs out for yourself here - particularly some of the statistical areas in outer Adelaide, and a number of those in regional New South Wales, Victoria and Queensland. 

Of course, one should never take unsolicited advice from a free weblog, but if you speculate in property in regions where unemployment is already elevated and rising, I reckon you need your head read. 

The Wrap

A soft result overall, with trend employment ticking up a little further, while the change in the unemployment rate was nothing like as dramatic as suggested by the nonsensical seasonally adjusted figure.

The Australia dollar quickly nose-dived to just 76.5 US cents, while another interest rate cut to a cash rate of just 2 percent is now being priced as near certainty in the months ahead.

Cash rate futures markets already see another cut as soon as March as a 73 percent likelihood at the close of trade, while a cash rate of just 1.75 percent is a real possibility before the end of this calendar year.

Carson Scott from Sky News Business mused in the "Twittersphere" that with the Australian dollar (AUD) to Renminbi (CNH) exchange rate declining to to fresh all-time lows, this could result in a flood of Chinese capital into Australian markets.

He may well be right.


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