Unemployment back to Howard-era highs


Total employment fell 3.7K in January.  It takes the back-to-back monthly losses to nearly 27K, which is the worst outcome since May 2011.

The unemployment rate hit 6%, the highest rate since mid-2003, but still historically low if we go back much further in history.

Employment gauges are a lagging indicator of the economy and so our view remains that the RBA are on hold for an extended time. The central bank should begin to normalise policy only later this year.

According to a Westpac survey, Consumer inflation expectations were unchanged in the year to February at 2.3%. Consumers' expectations on inflation remain well contained, but will need to be monitored closely after the uptick in inflation in the December quarter.

Share Markets: 

Financial markets had a mixed reaction to some poor economic data overnight.

Disappointing retail sales data was shrugged off by equity markets, possibly due to the temporary weather factors at play.

US equity markets also received a boost from a takeover announcement for Time Warner Cable by Comcast. The S&P500 rose 0.6% and the Dow rose 0.4%.


US treasuries rose (yields fell) on the weak economic data overnight, reflecting some uncertainty about whether the US economy will bounce back after the cold weather passes.

Although the Federal Reserve appears on track for steady tapering this year, which will put further upward pressure on yields, further weakness in the economic data increases the chances that the Fed could pause.

Foreign Exchange: 

The US dollar fell against a basket of currencies on weak retail sales and jobs data.

The GBP continued to gain to its highest in nearly 3 years against the US dollar (and rose against the AUD) after the BoE released some upbeat forecasts earlier in week, raising the prospect that the BoE will raise interest rates next year. 

Yesterday, the Australian dollar dropped almost a cent (from 0.9031 to 0.8928) following a disappointing jobs report revealing a lift in the unemployment rate to the highest in more than a decade.

Overnight, it gained some lost ground, predominantly on US dollar weakness.


Gold prices rose above US$1300 an ounce for the first time in three months on the disappointing US data. Copper prices came under pressure on ongoing concerns on Chinese demand.

New Zealand:

The New Zealand Performance of Manufacturing Index fell for the second consecutive month, down 0.2 points in January to 56.4.

However, the index remains above 50, indicating that the New Zealand manufacturing industry is still expanding.

United Kingdom: 

UK house prices rose in January according to a net balance of 53% of surveyors, reported by the RICS, down from the peak of 58% in November.

The index is still implying strength in the housing market, but it's possible that concerns about the end the funding for lending scheme support for home lending could be emerging.

United States: 

US retail sales fell 0.4% in January, and there were significant downward revisions. For the core retail component (ex-autos and gas) in Q4, core retail was revised down from 5.1% annualised in Q4 to 3.7%. 

The weakness has been blamed by the unusually cold weather, and could therefore likely be temporary. It adds to other recent indicators such as jobs, spending, orders and housing that point to an economy that lost momentum at the turn of the year.

US initial jobless claims rose 8k to 339k in the week ending 8 February.

The four week average claims pace of 337k was the highest in six months.

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