First annual decline in hours worked in 3 years: CommSec's Savanth sebastian
GUEST OBSERVER
From the outset it should be stated that the labour market is in pretty good shape.
The unemployment rate remains at a 2½-year low and jobs are still being created. However it is pretty clear that there is a slowdown in hiring taking place. And the consolidation in employment is consistent with the softer conditions across the economy over the past couple of months.
Not only is has there been a fall in full time jobs over the past two months, but weakness in hoursworked is more telling. Hoursworked has fallen for the past three months and in annual terms is now down 0.5 per cent on a year ago. Now that may not sound like much but it is the first annual fall in hoursworked in almost three years. Interestingly in trend terms (a more smooth measure), employment may have risen for 29 consecutive months but the jobs growth of just 4,100 in April was the weakest in 19 months.
After racking up almost 300,000 new jobs in 2015, there was likely to be inevitable period of consolidation. And the volatility in financial markets in the early part of 2016 was unlikely to see businesses commit to significant hiring. The fact that we are still adding jobs is a positive and while we expect employment to strengthen over 2016, it is likely that employers will be more circumspect in hiring given the upcoming Federal Election.
The Reserve Bank discussed the more mixed labour market signals at their last Board meeting ahead of cutting interest rates. Given the softer set of economic data no doubt policymakers will place more emphasis on labour market data in coming months.
The Reserve Bank will be hoping for a lift in activity levels particularly once the election gets out of the way. The key will be the inflation data, due on July 27. A super low inflation result would allow the Reserve Bank to contemplate another rate cut – in effect asking the question whether the economy could run at a faster pace without creating asset bubbles. We expect rates to be cut once again in August.
What do the figures show?
Labour force:
Employment rose by 10,800 in April after rising by 25,700 in March (previously reported as a rise in jobs of 26,100). Full-time jobs fell by 9,300 while part-time jobs rose by 20,200. Economists had tipped a 20,000 increase in jobs.
Hours worked fell by 1.1 per cent in April. Hoursworked are down by 0.5 per cent over the year – marking the first annual decline in hoursworked in almost 3 years.
The unemployment rate held steady at a 2½-year low of 5.7 per cent in April (lowest since September 2013). The trend unemployment rate fell from 5.8 per cent to 5.7 per cent – a 31-month low.
The participation rate eased from 64.9 per cent to 64.8 per cent.
A total of 244,700 jobs were added over the year to April. The annual growth rate rose from 2.0 per cent to 2.1 per cent. In trend terms, employment has risen for 29 consecutive months although the jobs growth of 4,100 in April was the weakest in 19 months.
The working age population rose by 21,700 in April. The working age population rose by 288,900 over the past year. The working age population is up 1.5 per cent over the past year.
Unemployment across states in April: NSW 5.3 per cent (March 5.3 per cent); Victoria 5.6 per cent (5.7 per cent); Queensland 6.5 per cent (6.2 per cent); South Australia 6.8 per cent (7.1 per cent); Western Australia 5.6 per cent (5.5 per cent); Tasmania 6.3 per cent (6.8 per cent). In trend terms unemployment in the Northern Territory rose from 4.4 per cent to 4.5 per cent; ACT unemployment fell from 4.2 per cent to 4.1 per cent.
Jobs across states and territories in April: NSW +8,400; Victoria +100; Queensland -5,600; South Australia +5,400; Western Australia +700; Tasmania unchanged. Trend terms: Northern Territory -100; ACT unchanged.
Why is the data important?
The Labour Force estimates are derived from a monthly survey conducted by the Bureau of Statistics. The population survey is based on a multi-stage area sample of private dwellings (currently about 22,800 houses, flats, etc.) and a sample of non-private dwellings (hotels, motels, etc.). The survey covers about 0.24 per cent of the population of Australia and includes all people over 15 years of age, except defence personnel.
If more people are employed, then there is greater spending power in the economy. But at the same time companies may adjust the work hours of employees. If employees work less hours, and therefore get paid less, then spending power in the economy is reduced.
What are the implications?
Labour market conditions have certainly improved over the past 18 months; business conditions are healthier; profitability has improved; and more importantly the housing sector is providing significant support to an array of industries. However the upcoming election has resulted in a more cautious tone across the economy.
The fact that the national unemployment rate is holding at 5.7 per cent – the lowest levels in 2½ years – will provide a big boost to confidence amongst Aussie consumers. And as we saw over the latter part of 2015, job security plays a big part in household consumption. However with a lack of wage growth, household real incomes could face pressure over the medium term and that is likely to be another reason why we expect that the Reserve Bank will contemplate another rate cut in August.
Savanth Sebastian is an economist for CommSec