US jobless claims fell to 332,000 in the week to March 10 and while that’s only down 10,000, it’s still a five-year low. A great outcome following the surge in payrolls we saw last week and a good omen of things to come.
As I write though, US stocks have only got a modest bid, with the S&P 500 up 0.6 per cent (1562) and only a couple of points away from a new record. The Dow is 84 points higher (14,539) and the Nasdaq 0.4 per cent higher (3259).
Energy and basic materials look to be the key outperformers at the moment, helped by a modest bid for crude (up 0.5 per cent to $92.99), natural gas at a 15 week high, and also a 0.3 per cent gain on copper. Elsewhere in the commodities space we saw gold down smalls to $1588. But otherwise there wasn’t any more to it than that.
The Europeans saw a stronger bid, markedly so by the looks, with the Dax up 1.1 per cent (a new 5-year high), the CaC up 0.9 per cent and the FTSE 0.7 per cent higher.
There are a few things here. Firstly, some positive corporate news (debt reductions, costs cuttings etc.), those positive US jobs figures and then commentary about the European leaders’ summit in Brussels. The pro-growth rhetoric is tough and is expected to yield results, with most looking for some easing in austerity (a draft EU statement alludes to this) or some offsetting pro-growth measures in the more fiscally sound economies.
On top of all that, Spain auctioned off some long-dated bonds which met with strong demand, and its central banks also stated that its commercial banks were less reliant on the European Central Bank for funding now. Yields were lower at the auction, although in the secondary market the 10-year yield rose about 6 bps to 4.83 per cent – weird as Spanish stocks were up 1.9 per cent led by their banks.
Elsewhere on the rates side there wasn’t much – the Italian 10-year fell a bit, a few bps to 4.59 per cent. Then US treasury yields were little changed, with the 10-year at 2.036 per cent, the 5-year at 0.88 per cent and the 2-year at 0.26 per cent. Aussie futures were up 3-4 ticks, with the 3s at 96.875 and the 10s at 96.365.
In forex, the big move was the British pound, which rose almost 150 pips to 1.5084 – seemingly on technical factors – while the Australian dollar was a touch higher at 1.0382. The euro then rose 60 pips to 1.3008 and the yen was unchanged at 96.113.
Now, as to those employment numbers yesterday, they were truly outstanding and people who try to play down the result embarrass themselves. It’s not necessarily that we should take the 70,000 increase as gospel. But then again that number is as believable as every other number we’ve seen.
What you should note is that the economists and journalists who play this number down didn’t play the December number down when jobs fell. They did play it down in August or June when jobs fell 30,000, and were more than happy to believe the numbers then. So look, the fact is the analysis provided by these people is useless — it nearly always is — as they are inconsistent and quite evidently biased in their interpretation.
Jobs have increased in something like six of the last eight months – a total of 133,000 in the second half of 2012 – with about 80,000 of those part-time jobs and 50,000 full-time. Growth averages around 17,000. That’s around trend, which, guess what – is what the GDP figures are telling you as well. This is an economy growing at trend – and has been, often above, for years.
The other thing that’s lost in the desperation to play down these jobs numbers is the fact that the unemployment rate didn’t rise. At 5.4 per cent the unemployment rate has been steady since mid-last year – that is, it hasn’t increased as forecast by everyone. The call was that the unemployment rate would be 6 per cent or more by now. In contrast, it looks like 5.4 per cent might be it. Certainly if participation and hours worked hadn’t increased this month, the unemployment rate would probably be 5.2 to 5.3 per cent.
For policy, the numbers show that once again the Reserve Bank board has misread the economy. It was only earlier this month they stated that the labour market was softening. If that was an isolated error it could be forgiven – people make mistakes and things change. It’s the human condition. But this is a board – and I am talking about the Reserve Bank board here, not the bank – that has made repeated offences. Repeated and significant errors of analysis. This calls into question their ability to do their job – to conduct policy.
How can they set policy appropriately if they are consistently wrong on the economy and on their interpretation of global events? Quite clearly they can’t. It’s like having a doctor who is incapable of making an accurate diagnosis. Would you then trust them to make a prescription? No, of course not.
Moving on to the day’s events, we see eurozone and US consumer inflation data and we also get US industrial production figures, the Empire State Manufacturing Survey and Michigan University’s consumer confidence estimate.
Have a great day...
Adam Carr is a leading market economist.
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