The Economy: Jobs Improve

A case is emerging for the Reserve Bank not to cut interest rates, either next month or December.

The economy is looking in better shape each week.

Yesterday's release of the September jobs figures from the Australian Bureau of Statistics was the latest example of how the health of the economy seems to be improving for the better.

The figures showed a sharper than expected 20,400 increase in the number of new jobs created.

As well the unemployment rate fell to 5.2% from 5.3% in August, while the number of new jobs was double market estimates of 10,000, with the jobless rate remaining at 5.3%.

(The ANZ forecast 7,000 new jobs earlier in the week.)

The figures are the strongest for six months and are against the recent easing trend in jobs growth that saw just over 21,000 jobs created in the six months to August, against more than 118,000 in the preceding six month period.

Hours worked fell in September for the first time for several months, an indication that the jobs market remains soft with employers adjusting working hours and not staff levels.

Jobs growth was split between full and part time work.

The ABS reported the number of people employed increased by 20,400 to 11,451,200 in September.

The increase in employment was driven by an increase in full-time employment, up 10,800 people to 8.044 million, and an increase in part-time employment, up 9,600 people to 3.407 million.

The number of people unemployed fell by 3,800 people to 634,200 in September, the ABS reported.

And by way of comparison, the UK jobs picture this week for the September quarter was terrible with the number of people out of work at a 17-year high and youth unemployment at the highest level ever.

And in the US the jobless rate remains stuck at 9.1% with no sign of any improvement in the offing.

So don't worry about our jobless rate and small moves around the current level.

Compared to the UK and US, we have plenty of jobs for people who want to work.

But the recent run of data underlines the change in the economic complexion: it's looking healthier than it did even a month or so ago.

We now have retail sales growing 0.6% in July and September, home loans up for six months in a row, car sales at near record levels, overseas travel at near record levels, and the second highest trade surplus in August on record.

Even inbound travel isn't the disaster that many in tourism claim it is and is only down 1% or so in the past year.

The more detailed industry breakdown in yesterday's release shows jobs growing in public administration, professional, scientific and technical services, health care and construction.

Manufacturing was the only industry in a down trend while the rest were more or less flat to a little off (such as retailing).

In fact the figures confirm that the growth in jobs continues in the part of the economy that is solid: services, which accounts for 85% of employment.

As well, business confidence and conditions improved noticeably last month, according to the latest monthly NAB survey out this week and consumer confidence edged higher as well, and is looking increasingly at odds with what's happening in the wider economy.

Consumers remain pessimistic by the standards of the Westpac sentiment survey, but they continue to open their wallets a little wider each month.

But that's not to say all retailing is doing well, it isn't.

Both JB Hi-Fi and The Reject Shop confirmed that their parts of retailing remained tough in the September quarter, while the complaints from David Jones and Myer about the weak sales position in department stores haven't stopped.

Despite some of the more excitable claims the economy is not suffering from a lack of demand, it has been hit on the supply side and is still recovering from the enormous hit in the first quarter from the floods in Queensland, parts of NSW and Victoria and Tasmania and Cyclone Yasi at the end of January.

As the national accounts showed, consumption grew at around 3% in the year to June, which is not a recession.

All combined to hit confidence levels, cut production of coal, iron ore, copper and other minerals as well as many rural products.

The post meeting statement from the October RBA board meeting told us that the RBA was giving itself the room to make a rate cut because of the easing in the domestic economy.

Based on the figures we have so far seen for August, the economy is better placed than it seemed a couple of weeks ago, but the RBA still could very well cut rates because it is confident inflation will ease.

Of course a rate cut will become almost automatic if the current moves to settle the eurozone debt and bank crisis are botched and volatility soars once again, as it did for most of September.