Unemployment steady as people stop looking for jobs


The unemployment rate stayed steady at 5.7% in October but continues to mask the softness in underlying jobs conditions. 

Jobs grew by just 1.1k in October.  The participation rate stayed steady at 64.8% and at lows last seen in late 2006, but the falling trend in recent months has helped cap the unemployment rate.

Full-time employment underscores the soft state of hiring conditions.  Full-time job losses were nearly 28k in October.

Losses in full-time employment have now occurred for six consecutive months, taking the total jobs lost to just shy of 60k; it is the worst result over a six-month period in four years.

Part-time employment growth is strong, up nearly 29k in October and growing by 4.4% in the year to October, which is the fastest annual pace since February 2010. 

Annual growth in monthly hours worked was robust in October at 2.0% and is occurring against a backdrop of robust part-time jobs growth.  The longer this combination continues, the greater the risk that some improvement in employment occurs.

We still believe the Reserve Bank has finished cutting rates but the ongoing softness in the labour market means the RBA will be inclined to keep rates low and steady for an extended period.

Share Markets:

US share market indices were lower overnight as the US GDP numbers fed speculation that the Federal Reserve will curb its bond-buying program sooner than expected.

The Dow Jones at the time of writing is down 0.9% and the S&P 500 index is 1.3% lower.

Twitter had a strong debut on the share market, trading as high as US$50.09 - well above its IPO price of US$26.


US 10-year Treasury bond yields were volatile, initially falling from 2.64% to 2.60% after the ECB cut, rebounding to 2.65% following the GDP report, and then slumping back to 2.60% on the net effect of the day's events.

Australian 3-year government bond yields (implied by futures) fell from 3.15% to 3.09% and the 10-year yield fell from 4.14% to 4.08%.

Foreign Exchange:

The US dollar index rose following the surprise rate cut from the European Central Bank (ECB) and then following the stronger-than-expected US GDP data.  However, later in the New York session the USD unwound most of these gains. 

The underperformer on the night was the euro.  EUR/USD plunged from 1.3515 to 1.3296, partly recovering to 1.3430 at the time of writing.

USD/JPY was unmoved by the ECB but responded to the US GDP data, rising from 98.80 to 99.40, but then fell to 97.80, possibly on safe-haven demand for yen.

The AUD's moves overnight were relatively contained when compared with those of the G7 currencies.  The AUD/USD exchange rate rose from 0.9470 to 0.9510 before the ECB decision pushed it down to 0.9445.


Gold prices fell amid market expectations tapering of the Fed's bond-buying program could happen soon.  In terms of the basket of commodities commonly watched by the markets, known as the CRB index, was softer overnight.


The ECB unexpectedly cut the refi rate by 25bp to 0.25% overnight.  In a poll taken before the decision, only 3 out of 70 institutions had expected the ECB to cut. 

The ECB acted upon its forward guidance from July that said the policy rate would "remain at present or lower levels for an extended period of time".

The ECB also extended by a year (to mid 2015) its intention to continue all refinancing operations as fixed tenders with full allotment. The statement also retained an easing bias.

The main change in the ECB's assessment of the outlook was that "we may experience a prolonged period of low inflation, to be followed by a gradual upward movement towards inflation rates below but close to 2% later on."

Previously the ECB had expected low inflation "in coming months" at the then prevailing 1%-plus pace with balanced risks but clearly October's surprisingly weak CPI outcome was too low for comfort.

ECB President Mario Draghi also noted that improvement in the fragmentation of monetary policy transmission had stalled lately. We doubt that this rate cut will do much to address policy transmission/credit availability issues but note the ECB "remains ready to consider all available instruments".

In key data published in the region, German industrial production fell 0.9% in September, to be up 1.0% on a year earlier.

Manufacturing was down 1.1%, construction dropped 1.8% but energy rebounded 2.1%. In Q3, industrial production rose 0.7% after a 2.4% rise in Q2, consistent with a slower pace of GDP growth last quarter.

United Kingdom:

The Bank of England's Monetary Policy Committee (MPC) kept its key interest rate at a record low of 0.5% overnight and its bond-purchase program at £375bn. 

The decisions were made with new economic projections that the BoE will release next week.  While it will probably raise its growth forecast, the issue for BoE Governor Carney is how this feeds into the employment outlook, which he has linked to policy.

The BoE have set a 7% unemployment level as the threshold for considering a rate increase.

United States:

GDP growth accelerated to 2.8% on an annualised basis, underpinned by inventory rebuilding and gains in net exports.

Personal consumption and business investment growth slowed, housing growth was steady and there was a surprise state-driven increase in public spending.

Year-on-year GDP growth in Q3 was steady at 1.6%, which is still only half the 3.1% pace the economy was running in Q3 last year when the Fed started QE3.

However, the core PCE deflator bounced from 0.6% in Q2 to 1.4% in Q3, recovering all of its fall from 1.4% in Q1.

Initial jobless claims fell 9k to 336k in the week ending 2 November. 

A further gradual unwind of the government shutdown impacted on the numbers. Other data showed mortgage delinquencies and foreclosures continuing to fall as a percentage of all mortgages, to 6.4% and 3.1%, respectively. 

These figures both represent new post-recession lows.