What a sweet set of numbers! Back to back monthly job gains and the unemployment rate sliding to a one-year low.
The latest employment figures provide a great deal of encouragement to policymakers, households and businesses. More people in jobs will mean more spending across the economy and more tax receipts for the government.
The clear surprise has been the sharp slide in the unemployment rate. Unemployment is holding at a sub-five per cent. We have highlighted for some time that unemployment rate was not going to blow out over the coming year – effectively hold between 5-5.5 per cent – and this result has even surpassed that view.
Recently the Reserve Bank Governor commented on the pessimistic outlook displayed by Australians compared with foreigner’s views on Australia. And if there was a time to be more optimistic it is now. Australia has one of the lowest jobless rates going around in the advanced world. Comparing the job market in Australia with the likes of the US and Europe is like comparing chalk and cheese.
Australia’s job market remains healthy, supporting growth in the broader economy. And it is still the case that an extra 50,000 odd workers now have jobs compared with two months ago. And that means more latent spending power. Of course in the current environment people are still more likely to be saving rather than spending, but that psych will shift as households adjust to the super-sized rate cut.
Give all the media focus on job losses in key industries like manufacturing, transport and housing it is hard to believe that there is an ongoing improvement in labour hiring. Even economist forecasts centred on job losses of 5,000 in April, but the result was far more upbeat with over 15,000 jobs created. It seems that a fare proportion of Aussie businesses are holding onto existing staff or hiring new staff, positioning themselves for the pickup in growth and investment. It is the old adage that bad news travels quickly while good news gets swept under the carpet.
The latest result rings true with the comments in last week’s Monetary Policy Statement. The key focus over the coming year will be wage costs and productivity. At present economic growth has been sluggish and migration has risen to a 3½ year high, yet the unemployment rate is holding below five per cent. The concern for the Reserve Bank is what happens to unemployment if activity levels rebounds back to trend levels.
Interestingly the number of hours worked rose in April and while that is a positive result it comes of a low base. In annual terms hours worked increased by a rather healthy 2.6 per cent. While employers have been looking at avenues to remain profitable and subduing costs, it may just be that the tide is turning, especially given that the employment result coincides with the recent pickup in retail activity.
Importantly the improvement has been over the past two months and the next couple of months will confirm if the pickup in employment is sustainable. The Reserve Bank is likely to still remain open to rate cuts in coming months – particularly given that inflation is holding at the low end of the 2-3 per cent target band and given the ongoing troubles in Europe. As such CommSec is still pencilling a further quarter of a per cent rate cut in August.
What do the figures show?
- Employment rose by 15,500 in April after rising by a revised 37,600 (previously 44,400 in March). Economists had expected a 5,000 fall in jobs. Part-time jobs rose by 26,000 after rising by 37,600 in March. Full-time jobs fell by 10,500 after rising by 10,600 in March.
- The annual employment growth rate rose from 0.3 per cent to 0.6 per cent in April. The working age population rose by 19,500 in April after lifting by 18,400 in March. The working age population grew by 1.23 per cent over the past year – equal to the smallest gain in almost 12 years.
- The unemployment rate fell from 5.2 per cent to 4.9 per cent in April – a 1 year low. The participation rate eased from 65.3 per cent to 65.2 per cent.
- The number of hours worked rose by 0.4 per cent in April to be up 2.6 per cent in annual terms.
- Unemployment across states and territories: NSW 4.9 per cent (4.8 per cent in March); Victoria 5.3 per cent (5.8 per cent); Queensland 5.1 per cent (5.5 per cent); South Australia 5.2 per cent (5.2 per cent); Western Australia 3.8 per cent (4.1 per cent); Tasmania 8.3 per cent (7.0 per cent); Northern Territory 3.8 per cent (3.9 per cent); ACT 3.3 per cent (3.4 per cent).
- NSW led the job gains in April (+23,800), followed by Victoria (+23,200), Western Australia (+6,800), and Queensland (+200), Jobs fell most in South Australia (-2,900) and Tasmania (-2,500). In trend terms employment fell in Northern Territory (-100) and rose in the ACT (+300).
- The working age population rose by 19,500 in April after lifting by 18,400 in March. The working age population grew by 1.23 per cent over the past year – equal to the smallest gain in almost 12 years.
What is the importance of the economic data?
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 for interest rates and investors?
In the Statement on Monetary Policy, the Reserve Bank made the clear distinction of the subdued nature of import prices compared with the more stubborn domestic cost pressures. The Reserve Bank will focus more predominantly on wage costs and labour productivity. Over the medium term subdued wage costs and/or an improvement in productivity will be crucial in ensuring that the Reserve Bank has scope to comfortably cut rates.
CommSec is pencilling in a quarter per cent rate cut in August, given the ongoing European debt concerns and the overall low inflation environment.