Australian Jobs Market Won’t Die, Nor Will The Economy

Does Australia have an economy that won't die?

It certainly looks like it after yet another puzzling jobs report that was surprisingly strong given the flood of negative comments, job loss reports and other gloomy commentary in the past month.

So as a result of the strong report, the question is, will the Reserve Bank still cut rates after the surge in jobs in March?

The way the dollar jumped and the tone of early commentary, you'd be betting the odds of a rate cut next month had blown out a touch yesterday.

But a rate cut will come next month.

We are now down to a purely inflation-based decision from the RBA board on May 1. The March quarter CPI figures are out on April 24.

According to the latest figures from the Australian Bureau of Statistics (ABS) yesterday more than 44,000 new jobs were added last month.

That saw (backing up Tuesday's solid ANZ job ads report) new employment split between full and part time work.

The unemployment rate was steady at 5.2% and unemployed fell slightly and more hours were worked as well.

A rate cut had been urged by the likes of Solomon Lew (Premier Investments, Just Group), business groups such as the Australian Chamber of Commerce and Industry (which wants an 0.5% slash), the heads of numerous other companies such as Wesfarmers, tourism groups, the banks such as Westpac where CEO Gail Kelly is calling them lower, as her chief and economist Bill Evans has been urging rate cuts for months.

Building approvals and home loans are slack, retail sales are weak, consumer confidence is weak (that's from the Westpac and the Melbourne Institute survey).

But the rival weekly survey of consumer confidence from Roy Morgan rose last week with consumers far more optimistic about their financial position, buying a car and making a major investment decision.

And car sales remain solid, overseas travel is still strong, the rural sector is looking at a bullish year, and mining investment is growing.

Exports are moderating (two monthly trade deficits in a row), but that's not a concern.

And on Tuesday the NAB monthly survey of business conditions and confidence showed a small increase and was on the whole more positive than it has been for a couple of months.

But the jobs machine rolls on.

On Tuesday the ANZ said the number of jobs advertised on the net and metro newspapers (down to a 4% share and falling) had risen to a three year high.

This report seemed to pass the market by and no one wondered if that was sending a message that the jobs market had not died, as so many people have claimed with the spate of losses in cars, retailing, banking and finance, manufacturing generally and airlines, plus the media.

In fact the number of new jobs advertised, as measured by the ANZ, is up a very strong 12% so far in 2012.

The spate of job loss reports saw quite a few market estimates for job losses of 5,000 to 15,000 (some saw a small rise) and a rise in the unemployment rate to 5.3%.

So the report from the ABS of a steady unemployment rate of 5.2%, came as some of a shock (for the second month in the last three).

The ABS said the number of people employed rose 44,000 to 11.491 million last month.

The rise in employment was driven by increased full-time employment, up 15,800 people to 8,080 million and an increase of 28.200 in part time workers to 3.419 million.

The increase in full time jobs was the biggest so far this year.

"The increase in employment was driven by an increase in both male and female full-time and part-time employment," the ABS commented.

The number of people unemployed fell (yes, fell) by 3,200 people to 629,100 in March, while aggregate hours worked rose 9.5 million hours to 1,624.2 million hours.

And, there was an increase in the labour force participation rate of 0.2 percentage points in March to 65.4%.

In fact, the first quarter saw the number of employed people jump by 76,700, the biggest quarterly advance since the last quarter of 2010.

But given the string of profit downgrades from companies, comments from their CEOs and various industry groups, not to mention unions with a lot of self-interest, the March jobs report is a little unreal in that it is showing an economy that is stronger than everyone thinks.

Looking at the states (besides strong WA), the most interesting development is the way the fortunes of Victoria and NSW have changed.

NSW's unemployment rate is 5% on the trend measure and just 4.8% seasonally adjusted. Victoria's corresponding numbers are 5.5% and 5.8%.

However, NSW's unemployment rate is low because population growth is lower than average as locals move out and the participation rate drops.

On the trend measure, there were 2,600 fewer jobs in NSW last month than there in March 2011 and the participation rate has dropped from 64.9% to 63.3%.

Remember the national figure was 65.4%.

Victoria has lost 28,200 jobs over the past year, but they're trying harder with a workforce participation rate of 65%.

But both states added jobs in March to lead the nation.

WA of has unemployment of just 4% and a participation rate of 68.9%.

Queensland's unemployment rate was 5.5%, but the participation rate is a strong 67%, despite the inflow of people from other states.

That adds to the puzzlement about the wider economy.

The AMP's chief economist Dr Shane Oliver said that employment growth "was far stronger than expected" with the 44,000 gain in March and this with a rise in the participation rate saw unemployment unchanged at 5.2% (against expectations for a rise to 5.2%).

"While there's no debating the strength of the March numbers it should be noted that the jobs stats are highly volatile month to month.

"More importantly the trend in jobs growth is simply not strong enough to stop unemployment from rising.

"Over the last year jobs growth has been just 37,600 whereas Australia needs to generate around 148,000 jobs a year to stop unemployment from rising.

"Our assessment remains that unemployment is likely to rise to around 5.75% over the next six months reflecting increasing layoffs as companies seek to reduce their cost bases in the face of soft demand.

"The likelihood of increased unemployment ahead along with chronic weakness in key sectors such as retailing, housing, manufacturing and tourism at a time when inflation is benign means that the better than expected March jobs figures do not diminish the case for lower interest rates from the RBA.

"We continue to see a 0.25% cut in the cash rate next month."

And so do most other leading economists and analysts.