Daily Commentary BY THE CURVE TEAM –

Jobs Growth Returns while Trump Continues to Steal Headlines

20th of July, 2018

After a softer start to the year, employment growth in Australia bounced back in June but as always seems to be the case with this data release, the devil is in the detail. Meanwhile Trump continues to steal the headlines, this time with controversial comments on the Fed while at the same time expressing his displeasure with recent moves on currency markets.

After a run of softer than expected employment outcomes over the past four months, employment growth returned with gusto in June with a total of 50,900 jobs created over the month. The bulk of the increase, 41,200, was full time jobs with the remainder made up of new part time roles.

The large increase was not enough to knock down the unemployment rate when rounded to 1 decimal place but took it to a 5 year low when rounded to 2 decimal places. A 0.2% increase in the participation rate was responsible to the lacklustre fall in the unemployment rate despite the large increase in employment.

The key in the employment outcomes is the amount of slack in the labour force. More specifically it is the level of underemployment which combines those looking for work with those who want more hours. While total aggregate hours continues to increase steadily, the lack of progress on hours worked per person suggests there is plenty of slack still in the labour force.

Ultimately what that means, like we have seen in other major developed economies, is that the unemployment rate is going to have to go much lower and hours worked per person higher, before we see a material lift in wage growth.

Offshore and President Trump continues to remain front and centre in the media, this time stealing headlines in an interview with CNBC overnight. You can catch the full clip here as Trump airs his views on the Fed and what has been happening in currency markets.

His views certainly are in line with what you would expect from Mr Trump, “the business man” but are somewhat controversial coming from Trump, the President.

While his remarks on the Fed are important to take note of, it is his comments on the USD which are of more immediate concern. It now means that currencies are now part of the trade war and are only going to galvanise the resolve of President Trump to pursue his objectives on trade and a better deal for the US.

Expect the trade wars to remain front and centre as the battle ground starts to spread. Tariffs were the starting point. Currencies are being thrust into the debate and there are a number of other avenues Trump might pursue to reach his objectives.

It all adds up to increased uncertainty and volatility which will impact decision making by businesses and investors, impacting growth and the outlook for interest rates.

David Flanagan

Director - Interest Rate Markets