Economic View

By Jason Fittler

Late last week, key economic data was released, which has generally been glossed over by the mainstream media. 

Unemployment is a key factor when we speak of a recovery or increased efficiency in our economy. On Thursday last week it was announced that unemployment had increased from 5.6% in May to 5.7% in June.  A small percentage increase but the details tells us a big story.

When we break down unemployment across the states we form the following picture:

As you can see Queensland and Tasmania have unemployment rates well above the average 5.7% in the headlines.

Further to this, youth unemployment (18-24years old) is around 27.3% for those looking for full time work. This is the highest it has been in 15 years, the participation rate (number of people who are looking for work) has increased from 65.2% to 65.3% or 10,300 extra people now looking for work. 

We have also seen an increase in the number of casual or part-time workers who would like to work more hours. This is the highest level of unemployment since 2009 and is expected to continue to increase.

This is not the sign of a health economy regardless what country you compare us to.

Yes, we may not be as bad as other countries, but these are not signs of an economy in recovery mode especially given that interest rates are at an all time low.

Back in May, Ben Bernanke announced that the US was looking to wind back its stimulus programs; this caused a pullback in the market and a fall in the Australian Dollar.

On Thursday last week Ben Bernanke announced that the stimulus program remains necessary because US unemployment was to high at 7.6% and the inflation was too low.

This caused the US markets to jump back and the US dollar to fall.

This is a major announcement, as it is the easing of the US stimulus, which is important to see if the economy is in recovery mode. Clearly it is not.

These announcements send a clear message that the economy is not strong.

China also announced poor results early last week, putting more pressure on our mining sector.

So regardless of all of the political speeches about efficiency increase in Australia and a strong economy, things are still tough and will get tougher.

With two major economic worries looming above the market we can be assured that we are not in a Bull market.

For investors, it means that we need to continue to tread lightly buying those companies who are trading below intrinsic value and paying the high dividend and have low debt.  

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