No smoking gun for RBA after full-time jobs record biggest fall in 5½-years

No smoking gun for RBA after full-time jobs record biggest fall in 5½-years
No smoking gun for RBA after full-time jobs record biggest fall in 5½-years
GUEST OBSERVER
 
Employment fell by 9,800 in September after falling by a revised 8,600 people in August (previously - 3,900). Full-time jobs fell by 53,000 while part-time jobs rose by 43,200. Economists had tipped a 15,000 increase in jobs.

Hours worked rose by 0.2 percent in September. Hours worked are up by 0.3 percent on the year.

Jobless rate: The unemployment rate fell from 5.7 percent to 5.6 percent in September. To two decimal points the jobless rate fell from 5.66 percent to 5.57 percent (lowest rate recorded in 31⁄2-years). The trend unemployment rate fell from 5.7 percent to 5.6 percent (hasn’t been lower in 31⁄2-years). The participation rate eased from 64.7 percent to 64.5 percent.
 
No smoking gun for RBA after full-time jobs record biggest fall in 5½-years

Unemployment across states in September: NSW 4.9 percent – 4 year low (August 5.0 percent); Victoria 5.7 percent (5.6 per cent); Queensland 6.0 percent (6.2 percent); South Australia 6.7 percent (6.8 percent); Western Australia 6.2 percent (6.3 per cent); Tasmania 6.5 percent (7.2 per cent). In trend terms unemployment in the Northern Territory fell from 3.5 percent to 3.4 percent; ACT unemployment was steady at 3.5 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?

Well the latest employment result certainly disappointed. Expectations were for a modest lift in overall employment however not only did total employment fall in September but the August result was revised to a larger fall. In addition the job losses once again centred on full-time employment. Full time jobs fell by over 53,000 in September – the biggest monthly fall in 51⁄2-years.

The shift to part-time employment has been the trend so far over 2016. In fact full-time employment fell by 112,100 over the nine months of 2016 compared with a gain of 104,000 full-time jobs this time last year. The economy lost momentum around the time of the UK ‘Brexit’ vote and the Federal Election. Simply, businesses wanted to see what happened before deciding on additional spending, investment or employment. It’s clear that Aussie business have been trying to manage their largest cost base (wages) given the slowdown in activity levels over the first half of 2016.
 
We expect that economic momentum will recover in the next few months. Anecdotal evidence suggests that spending has picked up after the election. Certainly job advertisements have continued to lift, in fact job vacancies are holding at 3- year highs – suggesting that employers are looking to hire staff in coming months. And both consumer and business confidence lifted in the last month.
 
Interestingly the unemployment rate continues to fall, now holding at a 31⁄2-year low. The slide in unemployment is being driven by a modest slide in the participation rate. However there is a vast differential across the states. In NSW unemployment as fallen to 4.9 percent – the lowest result in four years, while the ACT has an unemployment rate of 3.5 percent. At the other end of the spectrum unemployment in South Australia, Tasmania and Western Australia held well above 6 percent.

The weaker-than-expected unemployment result has left the door open for the Reserve Bank to cut rates in in November, but only if inflation remains stubbornly low next week. For the record we expect the “headline” CPI probably rose 0.4 percent in the quarter and 1.0 percent over the year, replicating the June quarter results. We expect that “underlying” prices rose by 0.5 percent in the quarter and 1.7 percent over the year.

Results in line with our forecasts don’t provide the “smoking gun” needed to justify another rate cut. But if the underlying estimate of inflation lifts by less than 0.4 percent then another rate cut will be on the agenda at the November 1 Reserve Bank Board meeting. The question for Reserve Bank Board members is whether there is value in cutting rates again.

What do the figures show?

Labour force:

Employment 9,800 in September after falling by a revised 8,600 people in August (previously -3,900). Full-time jobs fell by 53,000 while part-time jobs rose by 43,200. Economists had tipped a 15,000 increase in jobs.
 
Hours worked fell by 0.2 percent in August. Hours worked are up by 0.7 percent on the year.
 
The unemployment rate 5.7 percent to 5.6 percent in September. To two decimal points the jobless rate fell from 5.66 percent to 5.57 percent (lowest rate recorded in 31⁄2-years). The trend unemployment rate fell from 5.7 per cent to 5.6 per cent (hasn’t been lower in 3 1⁄2-years).

The participation rate eased from 64.7 percent to 64.5 percent.
 
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No smoking gun for RBA after full-time jobs record biggest fall in 5½-years
 
A total of 163,200 jobs were added over the year to September. The annual growth rate eased to a 17-month low of 1.4 percent. In trend terms, employment has risen for 34 consecutive months. The working age population rose by 24,800 in September. The working age population rose by 289,900 (1.51 per cent) over the last year.

Unemployment across states in September: NSW 4.9 percent (August 5.0 percent); Victoria 5.7 percent (5.6 percent); Queensland 6.0 percent (6.2 percent); South Australia 6.7 percent (6.8 percent); Western Australia 6.2 percent (6.3 percent); Tasmania 6.5 percent (7.2 percent). In trend terms unemployment in the Northern Territory fell from 3.5 percent to 3.4 percent; ACT unemployment was steady at 3.5 percent.

Jobs across states and territories in September: NSW +6,700; Victoria -11,700; Queensland -4,100; South Australia unchanged; Western Australia -7,600; Tasmania +2,300. Trend terms: Northern Territory -100; ACT +400.

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?
 
The latest jobs data suggests that the improvement in business conditions and confidence is yet to translate through to a lift in full-time employment. But overall it seems a case of steady as you go. The jobless rate is still the lowest recorded in three years and job ads data suggest that it could fall further in coming months.
As the job market tightens, the focus will shift to wage pressures. 

 

 

Savanth Sebastian is an economist for CommSec

 

 

Tags: 
Employment

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