Employment growth beats expectations in November


EMPLOYMENT grew by a stronger-than-expected 21.0k in November. It was the strongest rise in seven months.  However, underlying job growth remains subdued.

Average job gains over the past three months stand at a mere 8.4k.

The pace of job growth in November was insufficient to prevent the unemployment rate from ticking up to 5.8% in November, from 5.7% in October.

The economy has lost 16.2k full-time jobs in the eleven months to November while it has added 110.4k part-time jobs.

So the rise of 15.5k in full-time employment in December was encouraging.

There are signs that the domestic economy is beginning to improve, and in time this should bring about a pickup in hiring activity. However, we continue to expect the unemployment rate breach 6% early next year, driven by sub-par employment growth over the next few months.

This latest jobs data gives us greater confidence that the RBA is finished cutting the cash rate and will stay on hold well into 2014.

The Westpac-ACCI Actual Composite rose to 56.2 in the December quarter from 47.8 three months ago.

At its current level, the Actual Composite points to moderate growth in the sector; however, we caution that this is only the third expansionary reading in the past two years.

Arguably, the release of pent-up demand following the election has brought about this notable improvement in conditions. The weaker Australian dollar and an emerging uptrend in housing investment activity have also been supportive.

Trimmed mean consumer inflationary expectations, the Melbourne Institute's preferred measure, rose to 2.1% in the year to December.  This pace is up from 1.9% in the year to November.

Share Markets: 

US share markets slumped overnight, sending the S&P 500 index to a one-month low. 

Improving US economic data continues to spur market speculation that the US Federal Reserve might cut stimulus as early as next week. 

This speculation is pressuring US equities lower and also influencing the Australian share market.  The S&P 500 index fell by 0.4% and the Dow Jones was down 0.7%.


Yields rose in the US overnight as markets braced themselves for a possible tapering decision next week from the US Federal Reserve.

US 10-year Treasury bond yields rose from 2.84% to 2.89% in response to the above. A 30-year auction got a lukewarm reception, awarded at market yield but with a slightly sub-average bid-cover ratio.

Australian 3-year government bond yields (implied by futures) rose from 3.02% to 3.07% while the 10-year yield rose from 4.24% to 4.29%.

Foreign Exchange:

The AUD underperformed the major currencies, falling from USD0.9068 to USD0.8917 - a four-month low. Apart from the positive sentiment towards the US dollar, remarks from the RBA Governor Stevens quoted in the press also helped push the AUD lower. 

Stevens said that "to the extent that we get some more easing in conditions, at this point it's probably more preferable for that to be via a lower currency at the margin than lower interest rates". 

Stevens also said "with the falling terms of trade, he expects the Australian dollar's natural level to be lower than its current rate". 

And further that he thought "US85¢ would be closer to the mark than US 95¢ but really, I don't think we can be that precise."

The US dollar was back in favour overnight. The US dollar index bounced off a six-week low, outperforming all major currencies during the past 24 hours.

That was partly due to some decent US economic data, retail sales and business inventories beating expectations. Markets appear to be braced for a decision on Fed tapering next week. 

A dovish sounding ECB President added to the mix.  EUR/USD fell from 1.3803 to 1.3738.  Meanwhile, USD/JPY rose from 102.60 to 103.18.

The NZD meanwhile reversed its post-RBNZ gains, falling from USD0.8321 to USD0.8223. AUD/NZD fell from 1.0925 to 1.0819, the lowest level since October 2008.


The gold price capped the biggest drop in ten weeks in New York overnight amid concern that the US Federal Reserve will start tapering as soon as next week.  For similar reasons most base metal prices fell overnight, led by aluminium.

New Zealand:

The RBNZ yesterday published its monetary policy statement. 

In this statement, the RBNZ maintained its message that the official cash rate (OCR) will need to go up next year.

The economy is in a self-sustaining upturn, aided by high export prices, quake reconstruction and housing market momentum.

In this environment, there is less need for stimulus from low interest rates. The RBNZ is conscious that domestic inflation, once allowed to take hold, can be very tough to eliminate.

With that in mind, it is willing to look past low near-term inflation and a high exchange rate to some degree in order to keep the medium-term inflation outlook on target.

The RBNZ's projections are most consistent with an OCR hike in March next year. We accept this as the best forecast of the timing of the first move, though we note that the risks are skewed towards later rather than earlier.


Eurozone industrial production fell 1.1% in October, the third fall in four months.  Annual growth remained unchanged at 0.2%.

United States:

Retail sales rose 0.7% in November, which is the strongest monthly pace in five months. Auto sales rose a further 1.8%, but gasoline sales fell 1.1%, down for the third month in four.

Excluding those volatile components, core retail spending lifted 0.6% in November and October's growth rate was revised up to 0.6% from 0.3%.

With September revised up too, the core three-month annualised pace is now 5.4% versus 3.6% originally reported for October.  It makes the latest data the most robust set of retail figures since the start of the year.  It also provides evidence that consumer spending is emerging from a third-quarter lull.

Initial jobless claims surged 68k in the first week of December to 368k - a two-month high.  Some of the increase is mostly likely volatility due to the awkward seasonal adjustment of weekly figures around the start of the holiday season.

In other US data, import prices fell 0.6% in November while business inventories rose 0.7% in October.

Earlier this week, a Bloomberg survey had 40% of economists expecting the US Federal Reserve to start tapering in March next year. 

This figure is now closer to closer to 30% with the rest of those surveyed largely expecting a December 2013 or January 2014 move.