November rate cut still on despite unemployment to a 3-year low: CommSec's Savanth Sebastian
GUEST OBSERVER
Employment rose by 26,200 in July after rising by 10,800 people in June (previously reported as a rise in jobs of 7,900).
Full-time jobs fell by 45,400 while part-time jobs rose by 71,600. Economists had tipped a 10,000 increase in jobs.
Hours worked rose by 0.2 percent in July. Hours worked are up by 1.1 percent on the year.
Jobless rate: The unemployment rate fell from 5.8 percent to 5.7 percent in July. To two decimal points the jobless rate fell from 5.77 percent to 5.72 percent (lowest rate recorded in almost three years). The trend unemployment rate was steady at 5.7 percent (hasn’t been lower in three years). The participation rate was steady at 64.9 percent.
Unemployment across states in July: NSW 5.2 percent (June 5.3 percent); Victoria 5.9 percent (5.7 percent); Queensland 6.1 percent (6.4 percent); South Australia 6.4 percent (7.0 percent); Western Australia 6.3 percent (5.7 percent); Tasmania 6.2 percent (6.6 percent). In trend terms unemployment in the Northern Territory fell from 3.7 percent to 3.5 percent; ACT unemployment fell from 3.7 percent to 3.6 percent.
A raft of companies is affected by the employment data but especially those dependent on consumer spending. Amongst stocks affected are Fairfax, West Australian Newspapers, Seek Limited, McMillan Shakespeare and Skilled Group.
What does it all mean?
The headline employment result was certainly encouraging. Over 26,000 new jobs were created in July and the unemployment rate fell to a three-year low of 5.7 per cent. However the breakup of the figures, suggests the labour market has been largely marking time over the last few months, influenced by election uncertainty. Hours worked lifted in July, however it has fallen for six out of the past nine months.
Given the month to month volatility it is better to look at the longer term results. And in that regard, employment has totalled almost 72,000 new jobs in the first seven months of 2016, compared with over 150,000 in the same period last year. And the results are markedly more polarising when you compare the growth in full-time jobs.
Full-time jobs growth has gone backward by almost 65,000 so far in 2016 compared with jobs growth of almost 90,000 in the same period last year. It is clear that a slowdown in hiring has taken place – a result that has also seemingly shown up in the more sedate growth in the job ads series earlier this year.
The softer results across the labour market mirror other indicators across the economy, including retail sales. It’s pretty clear that the sluggish first half of 2016 resulted in employers managing their major cost base (employees) more carefully.
Importantly the election would have played a significant part in the pullback in hiring momentum over the first half of the year. And you could easily argue that the employment results are backward looking. Highlighting the economic environment 4-5 months ago.
The hope would be that now the election is out of the way consumers and businesses will go back to spending, investing and hiring - particularly given the ultra-low interest rates on offer and significant improvements in the household budget.
The Reserve Bank is likely to look through the latest result and wait on timelier forward looking data. Recent Reserve Bank commentary suggests policymakers are relatively optimistic about Australia’s medium-term growth prospects. Over the next few months the Reserve Bank would be looking at the impact of the last couple of rate cuts. Further rate cuts are more dependent on inflation outcomes, and from that regard CommSec expects another interest rate cut in November.
Savanth Sebastian is an economist for CommSec