This week has seen some very favourable news on the economy. There have been good readings for retail trade, house prices, various business surveys, commodity prices amid decent news from the global economy.
And now we have a perplexing labour force report. It shows employment rose 38,500 in July, which is usually good news particularly as it follows employment rising 7,000 in June and 42,000 in May. The spanner in the works of it being a good result is the surge in the unemployment rate, to 6.34 per cent which is the highest reading in 13 years. Making matters worse is the fact that the unemployment rate has been at or above 6.0 per cent for the last 14 months, a poor reflection on the economy given that the unemployment rate was below 6.0 per cent for every month for the 11 years before that.
Making matters worse still, is the fall in hours worked. While jobs are being created (in line with the increase in population and labour force – since January employment has risen 126,700 ), the number of total hours worked is all but unchanged.
So where to?
There are a couple of issues that spring to mind. The pick up in activity is only a recent issue – we know that the labour market lags the cycle and perhaps we need another 6 months of decent growth before we see the unemployment rate fall.
It could also be that some of the better economic news is a flash in the pan? We have all been blindsided by snippets of good news in the past, only to be disappointed when the next batch of numbers are released. There is some chance that this will happen again.
Who knows. In the interim, the balance of news still suggests the interest rate cutting cycle is over and that the next move in interest rates is up. It also favours the AUD trending up especially given the better global news. And it also points to the need to be fleet footed with macroeconomic based market trades. Lucky I have had my runners on in recent weeks.
