Aus employment

The employment data is out. Headlines are strong (3.39% UR).

Note those “hours worked” going near vertical (top right of the below graph) and a more encouraging number than last month for the employment change (bottom right) which was 0.

Participation rate still around all time highs.

It’s a lagging indicator (employment) but, with a lot of macro uncertainty out there, we can at least continue to claim that the labour market is strong, and a supportive story to one’s SAA, if nothing else.

Linking macroeconomic analysis tightly to a forecast about stock-market returns, or asset allocation, can be a very lame affair, particularly if you are trying to decide which fork in the road we are to go down (is employment “too strong”, and thus embeds inflation in turn driving rates causing a further sell-off in asset prices) or is it benign and broad-based “real” economic strength, playing out whilst inflation pressures immaculately cool on their own in the background (which would be great!).

Or both? A combination?

I think you can make the claim about allocating inline with one’s SAA objectives, based on this sort of data, and I think you can make some claims about direct equities, such as “the banks probably aren’t going to fall over just yet, given this employment picture”. Both statements are about the basis for portfolio decisions, whether that’s deciding the growth vs defensive tilt at the asset allocation level, or at the intra-asset class level, like our sectoral observation about the financials.

The “soft landing” pathway looks more plausible in the US, in our view, than it does in Australia, given differences in household leverage, and the sensitivity to rates, which is why we prefer international equities over Australian, in our multi-asset portfolios.

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