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The weekend news that the US unemployment rate has fallen to 6.3% in April came as a shock to the markets. As did the news a few weeks ago that the rate in March in Australia had fallen to 5.8%. Looking past the surprising (and likely to be reversed) decline in the Australian rate we are now considering a scenario where the US and Australian rates are moving closer together.
However, the weakness in the Participation Rate in the US is such that the difference between the two nations is a far greater than it might at first appear. Even given that the US and Australian data sets are formulated using very different methodologies, and we cannot therefore make genuine direct comparisons, a simple bit of maths shows us that if Australia had a Participation Rate the same as in the US (62.8 rather than the actual 64.7, and all other things remaining equal) our unemployment rate would have been 2.9% in March. That’s exactly half the actual 5.8% rate.
The labour market in the US is certainly improving; and in Australia things have clearly weakened (and may weaken a little further still): but there is a world of difference still between the situation in the two economies.
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