Economists uneasy over volatile unemployment figures in US and Australia
Unemployment fell 10 basis points to 6.6 per cent in January, but a separate survey which looks at payroll numbers, and which is considered more accurate, found the US economy created only 113,000 new jobs in January. That may sound like a lot, but it was well below economists’ expectations of 180,000 new jobs. It’s also the second month in a row that jobs growth has been weak. It will be a worry, but it’s unlikely to divert them from their tapering plans. Firstly, economists says the job creation numbers were likely affected by the cold snap in North America over the past two months, culminating in the polar vortex, although it’s hard to understand how weather affects hiring plans. Secondly, the separate household jobs survey, which asks households who got a job that month and who lost one, painted a much brighter picture of jobs growth in the US. It’s off this survey that the unemployment rate is derived in the US, and that’s now fallen to its lowest level in five years. The household survey is more volatile, but the Fed nevertheless will take some comfort from that. Indeed, the new Fed chairman Janet Yellen fronts up for her first congressional hearing as Fed boss on Tuesday morning, Washington time. That will be closely monitored to see what she has to say about the pace of the US economic recovery and the recent turmoil in emerging markets that the Fed’s tapering program is now causing.
Rising unemployment & weak growth in Australia: Economists think the unemployment rate might have climbed to six per cent in January, but like in the US, the survey is very volatile and therefore unpredictable. What we have seen over the past year though is a slow rise in the Australian unemployment rate. A year ago it sat at 5.3 per cent, and today it’s at 5.8 per cent, so it hasn’t been a massive collapse in the labour market by any means. However, the lacklustre jobs growth we’ve seen in the past year does reflect an economy growing below trend levels. The Reserve Bank and others are more optimistic about the growth picture for this year. On Friday the RBA revised upwards its forecasts for growth and inflation over the coming 18 months, mostly due to the lower level of the currency. Business is more confident about the future too, but that hasn’t translated into increased hiring as yet. Indeed, the jobless rate would probably be a lot higher right now were it not for falling participation rates: a lot of people have left the workforce or just given up looking for work. On Monday, the business lobby group the Australian Industry Group warned the federal government not to go for deep spending cuts and tax increases in the May budget. It made this plea in its pre-Budget submission, arguing deep cuts could weaken growth and destroy confidence just as the economy embarks on the tricky task of rebalancing away from mining investment. So there may be divisions emerging in the business community about how far Treasurer Joe Hockey should go in his pledge to end the age of entitlement and put the Budget on a more sustainable footing. Remember the person leading the Commission of Audit that’s laying the groundwork for a tough Budget is Tony Shepherd, the president of the Business Council of Australia. EP