Doubt the jobs data at your peril - again

Thu, 10 Dec 2015  |  

Today's labour force data, showing a further nice lift in employment and a further tick lower in the unemployment rate, has been met with howls of derision. The bagging and slagging of the ABS labour force release has been especially strong from those calling for rate cuts in September, whoops; October, whoops; November, whoops; December, whoops some time in 2016.

“The numbers are wrong”, they scream; “it’s sample rotation”, they holler; the strong GDP data (which fit with the solid pace of job creation) was all exports so the jobs numbers, especially in NSW, “can’t be right”.

Any fund manager investing on the basis of these data doubters will have been smoked. The data doubters have been very bearish the Aussie dollar – calls for low to mid 60s are common (some even were looking for 50 cent if I recall correctly), linked it appears to aggressive interest rate cuts from the RBA. The recession, so often forecast, remains ellusive. 

In the last few months, the Aussie dollar has been strong and is currently holding around 72.5 to 73 US cents, with nice gains against the Euro, British pound and Canadian dollar. The futures pricing for official interest rates has gone from two further rate cuts (to 1.5 per cent) just a couple of months ago, to now having less than a 50% possibility of one final 25bp cut. That is jump of 40bps. The bond market has been similarly smashed – the yield on 10 year government bonds, for example, are up 35bps or so from the October low and are up around 70bps from April.

And how do the smarties know the ABS data are so horribly wrong? To be sure, the monthly results are choppy and a little over a year ago there was a problem that the ABS appears to have addressed. And oddly enough, there is no other data source for employment so how can they be sure the level of employment is not what the ABS suggests? The local shops were quiet? A housing crash?

And for those of us who undertake sober analysis of the growth in ANZ job advertisements, job vacancies, economic growth and its composition, and the effect of record low wages growth on labour demand, the ABS labour force data are more “right” than not and the rise of the Aussie dollar and bond yields is entirely sensible. 

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