Employment growth sped up at end of 2016


The pace of employment growth gathered pace towards the end of 2016.

In December, employment grew a moderate 13.5k following relatively healthy gains over October and November. 

The pickup is consistent with a moderate pace of activity within the economy. Reflecting weakness earlier in the year, 2016 was a much softer year of job growth in comparison to 2015. 

The year added a total of 91.5k jobs, while in 2015, there were 297k jobs created. Encouragingly, full-time jobs rose for the third consecutive month. 

However, despite the recent gain, full-time jobs are still weaker than a year ago. The unemployment rate edged up from 5.7% in November to 5.8% in December, the highest in six months. 

This largely reflects the participation rate edging higher in the month. As a trend, the unemployment rate has remained broadly steady over the past year. 

We continue to expect sufficient job gains to keep the unemployment rate broadly steady over the coming year, but we are far from expecting any meaningful decline in the unemployment rate. That would suggest that a fair degree of labour market slack will remain keeping wages and inflation subdued.

Share Markets:

The downturn in sentiment extended for another session as investors continued to question the Trump-inspired rally.

Equity markets shrugged off some positive US economic data, and there was minimal reaction to a rather dovish European Central Bank. The Dow and S&P500 indices were both down 0.4%.

Interest Rates:

US treasuries were also sold off, and supported by firm US economic data overnight. While the share market is reversing its moves post the US election, the bond market continues to factor in tighter monetary policy and higher inflation. US 10-year yields rose 4 basis points to 2.46%.

Futures also imply a further rise in Australian yields. The 3-year lifted 2 basis points to 2.07% and the 10-year rose 4 basis points to 2.83%. 

Foreign Exchange:

The US dollar index initially rose, largely reflecting a fall in the euro in reaction to ECB President Draghi's comments suggesting easy monetary policy settings would remain in place, but these moves were reversed earlier this morning.

The Australian dollar mostly held at just above 75 US cents, and was trading at 75.6 cents this morning.


Oil prices edged slightly higher as the International Energy Agency (IEA) said that oil markets had been tightening.

Gold prices also rose slightly.


The European Central Bank (ECB) left monetary policy unchanged as widely expected.

Draghi noted that recent indicators had firmed, and that inflation had picked up.

However, Draghi viewed the jump in inflation as due to a temporary lift in energy prices and said that "there are no signs yet of a convincing upward trend in underlying inflation" and there were risks to the outlook.

New Zealand:

Building permits dropped 9.2% in November. It was the largest monthly drop in just over 3½ years, although consents were 5% higher than a year ago.

The BusinessNZ manufacturing PMI remained at 54.5 in December, unchanged from November. While the index is down from a recent peak of 57.6 in June 2016, it remains comfortably above 50 signalling expansion.

United States:

Housing starts surged 11.3% in December partly recovering from a revised 16.5% drop in the previous month.

Building permits slipped 0.2%, and suggest a further plateauing in home construction, but the strong rebound in the month suggests some resilience as rising mortgage rates begin to bite.

Initial jobless claims slipped from 249k to 234k for the week ending 14 January, the lowest in nine weeks and taking the four-week moving average to its lowest since 1973. It provides yet another indication of further improvement and tightening in the labour market.

The Philadelphia Fed index provided more positive news. It rose from 19.7 in December to 23.6 in January, the highest in two years.

The more upbeat mood in manufacturing surveys might reflect optimism post the US election. However, it remains to be seen whether this translates into stronger business spending, which has been weak of late.