Fall in unemployment needs to be taken with a grain of salt


An unexpected fall in the unemployment rate to 5.6% occurred in September.  However, this headline rate needs to be taken with a grain of salt.

The Reserve Bank itself has recently said the 'unemployment rate may not fully capture the extent to which conditions in the labour market have softened'. 

An alternative measure of the health of the jobs market, the population-to-employment ratio, stayed near a 7½-year low. 

Moreover, jobs gained only a modest 9.1k in the month. The unemployment rate would have stayed steady at 5.8% if it were not for the fall in the participation rate to 64.9% - its lowest level since November 2006.

Leading indicators of employment suggest we can expect the jobless rate to drift higher in coming months. 

The recent back-to-back rise in business confidence could help cap the rise in the jobless rate if the lift in confidence is sustained and flows through to greater spending.

Consumer inflation expectations lifted from an annual rate of 1.5% in September to 1.8% in October. 

It remains below the RBA's 2 to 3 percent per annum target band  Inflationary expectations remain very low and should not be an impediment to another rate cut in this cycle.

Share Markets: 

US equity markets responded well to a Republican offer to push the deadline date for potential default to the end of November or mid-December.

While the offer comes with conditions and has yet to be accepted by the US President, markets saw the move as a step in the right direction.

The Dow was up 2.2% while in Europe, the FTSE rose 1.5% and the Dax was up 2.0%.  The scene is set for a strong opening in Australia with the SPI index up 71 points.


Despite the enthusiasm of equity markets, US bond markets ended the day little change.

A US 30 year, $13 billion bond auction was well bid although yields on US ten year government bonds edged higher.

In Australia, ten year yields are now well above 4.0% but developments in the US could see that change today.

Foreign Exchange:

While the AUD dipped briefly below US 94 cents yesterday, it picked up against the USD overnight to end that session in the mid-US 94 cent range.

The US dollar index was effectively range bound yesterday but is well up over a two day period. If the US economy re-finds its footing, 'tapering' will eventually occur and this could put downward pressure on the AUD.

As always, any decision on tapering will be data dependant. Sadly with the US government shut down, that data will be in short supply.


Gold continued its slide. There is no runaway inflation in the US and in all likelihood, bond market chaos will be avoided - as such the demand for gold tends to lose its appeal.

Potential resolution of the short term US debt issues lifted demand for oil and copper. 


French industrial production rose 0.2% in August, the first rise after a cumulative 2.2% fall over the previous three months.

Survey data in France and the UK is pointing to a pick-up in activity but this has yet to flow through to the official statistics covering economic activity.


Machine orders rose by 5.4% in August, after a flat result in July.  Despite the month-to-month volatility in this series, the result for August was above median expectations. 

Other indicators are also suggesting that capital spending is improving. 

The annual growth rate stepped up from 6.5% to 10.3% in the year to August.

New Zealand: 

The Business PMI in September fell for the second consecutive month to 54.3 in September, from 57.1 previously.  It was the lowest reading in six months, but it remains above the 50 mark signalling an expansion in activity. 

United Kingdom: 

The Bank of England left its official interest rate on hold at 0.5% and asset purchases were maintained at £375bn.

United States:

A short term debt ceiling increase, to allow more time for the White House and Congress to negotiate a longer term deal, encompassing the current year budget, the debt ceiling and spending cuts, whether across the board or to specific programs,  seems more likely today.

It would reduce the risk of a catastrophic default by the US government, but still translate into further fiscal drag on an economy that is struggling to grow at 2%, with the full impact of this year's fiscal sequester still to be worked through.

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