The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Thursday, January 19, 2012

The best analysis of the unemployment data that you will read--from JP Morgan

This is outstanding:

Australia’s December labour force survey was a mess, with big, but contrasting swings in full and part time employment, as well as in participation...The breakdown by state similarly was not particularly illuminating. The unemployment rate surged in New South Wales (from 5.2% to 5.6%), but fell sharply in Victoria (from 5.5% to 5.2%) and Queensland (5.7% to 5.4%), holding steady in the remaining regions.

The demographic splits were more interesting, and suggest some temporary factors at play which temper the implications of the larger swings in today’s data. The 33,000 decline in the size of the labour force in December was exactly explained by lower participation in females aged 15-24. Specifically, part-time employment of 15-24 year old women also was down exactly 33,000, which simultaneously explains 60% of the decline in total part time employment.

While there is no breakdown by industry, the timing - part-time employment of young people around Christmas and the summer holidays – is consistent with softer trends in retail employment, as many operators shift toward online content or lose volume to other online vendors. Indeed, in original terms part-time employment for 15-24 females dropped 2.5%m/m in December, whereas employment in the same category rose 6.6%m/m the prior December. This very soft outcome undoubtedly was exacerbated in the headline data by challenging seasonal factors for that time of year.

Therefore, while the headline components of the report provide enough variation for data watchers to choose their own adventure in gauging the trajectory of the labour market, the concentration of weak demand (part-time employment) and supply (participation) in the narrow field of 15-24 year old females warns against drawing too many inferences. Our sense is that the unemployment rate, which stayed stable at 5.2%, is the element providing the most signal relative to noise in the report. It is likely that the RBA will interpret the results in the same fashion, given the emphasis placed on the stability of the unemployment rate in recent official commentary.

With today’s data being too much of a mess to provide the smoking gun for the RBA, the risks are that the RBA stays on hold at the February meeting, rather than delivering a further cut as in our forecasts. Unless next week’s 4Q CPI report throws up any curve-balls, we expect the February decision will come down to the global newsflow over the next couple of weeks, particularly that surrounding Europe, and the Board’s willingness to move based on the evolving balance of risks to global growth.