How the RBA Can Use Unemployment to its Benefit

September has come and gone, and with it another subpar month for the jobs market. There was some bit of good news at least. The unemployment rate, at 6.2%, was unchanged according to ABS figures.

Well, that’s something at least. No one lost their jobs. Or did they?

You’d be forgiven for thinking that ‘steady unemployment’ means what it implies. But nothing is quite so simple when it comes to the jobs market.

As a matter of fact, 5,100 people lost their jobs during September. That’s well below an anticipated 9,600 additional jobs. If my calculations are right, that makes the actual figure some 14,700 jobs worse than expected.

As you’re no doubt aware by now, the unemployment rate is a curious beast. It says one thing, when it means the complete opposite. The number of people out of work did rise by 5,100. But the participation rate fell by 0.1% to 64.9%. In the upside-down world of employment, participation is as good as a job.

We can’t just categorise people not working as unemployed, can we? That would be too logical. Instead, to classify as unemployed, people must cease searching for work. The absurdity of this helps explain why the unemployment rate remained steady in September. Falling participation merely papered over the loss of real, actual jobs. All it took was for people who didn’t have jobs in the first place… to remain without a job.

Yet warping jobs figures the way the ABS does has its upsides. It’s a good way of making things look better than they actually are.

Another thing the ABS deserves credit for is its commitment to gender equality.

The ABS broke down unemployment figures down the line between males and females. Male full time and part time employment fell during September. At the same time female full time employment was down too. It’s baffling why the ABS, or anyone for that matter, finds this relevant. As if truly matters which gender outperformed the other. What matters is that people lost jobs, full stop.

Ultimately, the unemployment figures don’t tell us much. Any reaction to it on markets will be temporary. It’s not a big enough swing to carry any long term threat.

Currency traders sent the Aussie dollar lower, as expected. The Aussie fell to US$0.731 against the US dollar in early trade. It should recover those losses by the end of the day.

But it does make you wonder. Has the Reserve Bank missed a trick here with the dollar?

Is unemployment just what the dollar needs?

We know the RBA wants to weaken the Aussie dollar, right? And we know it’s because they want to make Aussie exports cheaper. A weaker dollar is the RBA’s objective, goal, and long term strategy rolled into one.

There are no other plays in its handbook, apart from lowering rates that is. The RBA is loath to do that because, as you know, it achieves nothing. It only creates more instability and risk in the economy. And it drives up asset prices like property. All without addressing concerns within the real economy. Again, we know that’s true because businesses don’t care about spending despite record low rates of 2%. We know this because businesses expect investment to fall short by $104 billion over this financial year.

How to weaken the Aussie dollar without cutting rates then?

Well, the RBA could rely on interest rate policy from abroad, say the US. That seemed like a good plan for a while. But with the Federal Reserve getting cold feet, that plan is on hold for the time being. So what if the RBA took matters into its own hands? Has the answer been in front of its eyes this whole time?

Hear me out, it’s an ingenious idea. Call it the ‘Unemployed Dollar’.

What if, instead, the RBA conspired to send the unemployment rate through the roof. Take your pick: 10%, 15% perhaps. We could even join our European colleagues with jobless rates of 20%.

The brilliance of this plan lies in its simplicity.

Make the economy look as worse as humanly possible. We won’t even need to lose any real jobs. Every man, woman and child can become a ‘participant’ in the economy. That way, we’d all be looking for jobs, even our newborns. Then sit back and watch the dollar plummet as the jobless rate skyrockets…

Of course this idea is both ridiculous and eccentric. It’s all these things and more. It’s absurd because the idea of waiting on deteriorating economic conditions is crazy. Which is more or less what the RBA is doing right now.

If the RBA is hell bent on weakening the dollar, why does it matter where it comes from? If it’s not US interest rates, or slumping commodity prices, why not unemployment? Why not mastermind a depression, in the hope of sending the Aussie dollar to US$0.60? That’s really what we’re saying here.

And before we question fiscal policy, on the government’s end, remember who created this mess. The government made it’s fair share of policy mistakes, sure. But they didn’t turn the credit taps on. That’s all on the RBA.

The madness in all this? The RBA will need to lower rates further to keep unemployment from rising. Despite the fact that a frail economy, reflected in rising unemployment, helps the RBA’s case for weakening the dollar.

The ‘Unemployed Dollar’ scheme might not be such a bad idea after all.

Mat Spasic,

Contributor, Markets and Money

PS: Australia’s unemployment rate is holding steady, but for how long? Weak economic growth is forcing businesses to cut back on investments. Everything from infrastructure spending to jobs will take a hit. This will ramp up over the coming months, as Australia weak economic growth catches up with it.

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