The ABS unemployment figures released this morning highlight the ongoing strength of the Aussie economy despite this year’s interest rate hikes. While many analysts were expecting a significant weakening in employment growth, and indeed the seasonally adjusted figures indicate such a weakening, the official unemployment rate remained at a 30-year low in October.

The seasonally adjusted unemployment rate actually fell to 4.6% mainly due to a plummeting seasonally adjusted participation rate, but trend estimates indicate a solid participation rate and a static unemployment rate. The ABS seasonal adjusters clearly expected much higher participation rate growth – could it be because there is little seasonal work available in the drought-ravaged country?

But onto the big story. In the US, the Democrats have swept to victory in the mid-term elections and, if the knife-edge Virginia Senate seat swings their way, are likely to have gained control of both the House of Representatives and the Senate.

After a bitter election campaign dominated by escalating violence in Iraq, corruption and questions over President Bush’s leadership, the most painful aspect of the day for the Bush administration is likely to be the resignation of Secretary of Defence Donald Rumsfeld. The Democratic Party had repeatedly called for Rumsfeld, the architect of the Iraq War, to resign but Bush had stood by him until yesterday’s defeat.

As Henry’s “Lexington” (his distinguished US visitor) hurried off, Henry asked him what exactly this Democrat avalanche means for US politics.

He offered: “Bitter partisanship and witch-hunts are always self-destructive… the American people will exact their punishment in 2008 if paralysis and gridlock stall change”.

Paradoxically, the Democrat win is considered to be great news on Wall Street as gridlock in Congress keeps the lawmakers out of the way of business interests. Consequently, over the last three days, Wall Street gained significantly and finished at the third straight record close.

Much of the political analysis on these elections has understandably been focused on the popularity of the War in Iraq. However, as Henry’s Lexington astutely pointed out: “Traditionally, Americans vote with their pocketbooks” – a variation on the “It’s the economy, stupid” theory.

It is important to understand the role that the economy played in the elections. While the latest ABC News/Washington Post Consumer Index found that consumer confidence is at a three-year high – indicating that the public are relatively optimistic economically, there are radical differences between different segments of the American population.

For example, the bitter partisanship that Lexington spoke of extends to the economy – while the overall ABC News/Washington Post Consumer Index sits at -3 on the scale from -100 to +100, the index is +38 among Republicans and -22 among Democrats. Furthermore, the index is +43 among higher-income Americans while -53 among those with the lowest incomes, +14 among college graduates while -35 among those who haven’t finished high school. Clearly the apparent economic optimism of the American public is far from universal.

Henry’s Lexington also said that while the Republican Party have lost power in the House of Representatives and are close to losing in the Senate, they will not lose relevance and they will be far from impotent. For example, the new Democrat-controlled Senate will not be able to invoke “cloture” – an important debate stifling function that requires three-fifths majority.

Therefore, expect Congress gridlock to be a crucial issue in the 2008 Election campaign, which begins in earnest today.

Read more at Henry Thornton.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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