Australia: Fifth consecutive solid update on the pace of employment growth - Westpac

Justin Smirk, Research Analyst at Westpac, notes that the Australia’s July Labour Force Survey provided the fifth consecutive solid update on the pace of employment growth as the 27.9k gain was above market expectations (20k) but less than Westpac’s forecast for 35k.

Key Quotes

“In July the annual pace of employment growth was flat at 2.0% which is currently consistent with the Westpac’s Jobs Index. We should note, however, that the Jobs Index is pointing to employment growth accelerating to around 2½%yr pace. As such, we are not looking for a slowdown in employment growth until early 2018.”

“In July, total employment rose 27.9k for a 87.5k total gain over the last three months or an average of 29.2k per month. The annual pace of employment growth has lifted from 0.9%yr in February to 2.0%yr in May and it held that pace through June and July. The Australian labour market went through a soft patch in 2016 that was particularly pronounced through August to November when the average gain in employment per month was just 2.2k. We have clearly bounced out of this soft patch with the labour market now holding a firmer trend with an average monthly growth of 33k for the last six months.”

“There was the usual volatility in full-time/part-time employment but over the past few months the results are more indicative of a robust labour market. Full-time employment fell 20.3k following on from a solid 69.3k gain in June. In the year full-time employment gained 197.7k for a 2.4%yr pace which is now exceeding that for the pace of growth in the working age population. Part-time employment rose 48.2k following a –49.3k in June. In the year to July, part-time employment has lifted 41.6k or a 1.1%yr pace.”

“A further sign of consolidation as the 0.8% fall in hours worked following the 0.7%mth bump June which followed a 1.5% surge in May. The annual pace for total hours worked has eased back to 1.9%yr from to 3.3%yr in June which was the fastest pace seen since December 2015.”

“The reported gain in employment was also associated with a 0.1ppt bump up in participation to 65.0 leading to a 29.0k gain in the labour force so it was somewhat surprising to see a fall in the unemployment to 5.6% from 5.7%. However, it would be best to report it as flat as at three decimal places the unemployment rate was 5.650% from 5.654% in June. We believe we have seen the low point for unemployment in this cycle and expect it to hold around 5.6% until it starts to drift higher from end 2017.”

“A consolidation picture comes through in the state date, with soft gains in NSW (+0.5k) and SA (0.8k), falling employment in Vic (–2.2k) and WA (–1.3k) all being offset by a surge in Qld (+27.0k). This mixed employment print was matched in unemployment which rose in NSW (now 5.0% from 4.9%) and Vic (6.1% from 5.9%) while the unemployment rate fell in Qld (6.2% from 6.5%) and WA (5.4% from 5.6%).”

“So while this was a month for consolidation it is still a sound update on the labour market. While we expect the monthly numbers to be quite volatile, the Jobs Index is pointing to total employment growth hitting 2½%yr by year’s end. From a 2.0%yr starting point this estimate is now looking far more plausible.”