- September employment revised to -23.7k from -29.7
- unemployment rate in September revised to 6.2% (from 6.1%)
- Change in employment between July and August 2014 has been revised from growth of 32,100 persons to a fall of 9,000
The revision is quite ugly, IMO:
The revisions are not good but I don’t think they are bad enough to prompt immediate RBA action. But, this worsened picture of the employment data (the ‘trend’ data in particular) could be bad enough to change the language in the statement to more dovish.
I think the scale used on the ‘UNEMPLOYED (TREND)’ graph above is notable. If the RHS scale was different (if it shows 0 – 775,000, for example) then the surge in unemployment would look less dramatic (though that’s is ZERO comfort to those who are unemployed). But there is no denying the acceleration in the trend of unemployment regardless of the scale used.
The RBA have two official mandates; price stability and full employment:
- The specifics of the RBA’s mandate rest on the provisions in section 10 of the Reserve Bank Act 1959 requiring the Bank to ‘ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia’ and that its powers are ‘exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to: (a) the stability of the currency of Australia; (b) the maintenance of full employment in Australia; and (c) the economic prosperity and welfare of the people of Australia’.
The RBA will not like the picture the new data is painting, particularly the earlier and more pronounced downturn in employment numbers (on the ‘seasonally adjusted’ graph above) , nor the acceleration in the unemployed ‘trend’. There is nothing the RBA can do about past data, the question is how they will assess this going forward and what they might change in language or policy. And, for us, the question is what will be the impact on the AUD?
Like I said above, I don’t think this revision is enough to prompt a change in policy from the RBA today (i.e. a rate cut), but I don’t think the chance of a cut is zero, either. A cut would be a surprise (a big one) but it would be a welcome surprise (and the RBA is not completely unappreciative of favourable publicity). I reckon the chance of any move from the RBA today was zero prior to these labour force revisions … but I reckon the chance has just increased … I’d put it at say 15% (yeah, I’m not immune from the round number effect).
Last week’s inflation data was benign, the ‘trimmed mean’ came in the middle of the target band (y/y is at 2.5%) and below expectations. And the next reading is going to be A LOT lower (check out that inflation link for why). I also asked last week “Let’s get some macroprudential tools action on the housing sector and then how about a rate cut Mr. Stevens? Why not?” I think the RBA should cut rates (and also recognise that what I think they should do is irrelevant).