Sunday, April 5, 2015

US payrolls disappoint – or is this full employment? | Aussie rate cut confusion

The closely watched Non-Farm payrolls report in the US on Friday came in well short of what would have been a good outcome – 126k new jobs as opposed to the +200k which is regarded as required to maintain the momentum that has been established for some time now, and which had motivated most market watchers to expect a rise in core interest rates around the middle of this year.

The figures announced by the Bureau of Labor Statistics are more nuanced than that, however. For one thing, this is only one data point, while the Federal Reserve will be concerned with the trend, taking into account a whole range of readings over time. For another, average hourly earnings (month-on-month) showed a significant rise, from 0.1% to 0.3%. The lower job growth figure, taken in the context of a higher wage readout, could indicate that, at 5.5% (unchanged since last month), the unemployment rate has gone as low as it can go. There is nowhere in the free world where the unemployment rate has reached zero. Are we, in fact, looking at what is effectively full employment in the US, or something close to it?

Aussie rate cut confusion

The Reserve bank of Australia meets in the early morning GMT time tomorrow to decide whether or not to cut core interest rates. While, not so long ago, the market was expecting that a rate cut was a virtual certainty (Ausse rate cuts a ‘virtual certaintly’), now it is not so sure. While a cut of 0.25 percentage points has been priced in to the Aussie dollar exchange rate against its major counterparts, a survey of economists carried out by Bloomberg has determined that a cut will not now, after all, be announced.

In the meantime the importance of Iron Ore to the Australian economy has been underlined by the news that exports from Oz, most of which are made up of the raw material for steel production, have been declining for the past 10 months. The price of Iron Ore has been steadily collapsing in the face of significantly reduced demand from China and a steadfast refusal by the larger Iron Ore miners to place any limits on production.

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