What does it all mean?

• The detailed labour market data has added further weight to the underlying strength in labour demand. Over 60,000 jobs were created in the three months to May – marking the best quarterly result since late 2010.
• Given all the media focus on high profile job losses in key industries like manufacturing, transport and housing, it is understandable that consumers are uncertain when it comes to job security. But the latest result paints a far different picture. Not only are businesses holding onto existing staff but they are actively hiring new staff, positioning themselves for the pickup in growth and investment.
• Encouragingly jobs growth was broad-based, occurring in 12 of the 19 industry sectors. And more importantly the strength in employment was not just centred on the fabled mining sector, rather it was Professional & scientific services that led the gains followed by Education & training and then Mining. Even the beleaguered hospitality sector seemed to go on a hiring spree, with Accommodation & food services hiring 24,000 workers in the quarter. What the data does confirm is that the domestic economy remains fundamentally sound and the lack of activity is more a confidence and momentum driven issue than a structural rift.
• Granted there are sectors that have been finding conditions difficult, and the data highlights the multispeed nature of the domestic economy. While an array of sectors were showing signs of improvement, job losses continued to gather pace in the manufacturing and construction sectors. In fact the manufacturing sector has not recorded annual employment growth in nearly four years. The strength of the Australian dollar and higher comparative wages has resulted in the sector being less competitive on the global front.
• The construction sector has shed almost 60,000 jobs in the past year, driven by the lack of interest in new housing. The higher interest rates have been detrimental to the sector. However given the sizeable recent rate cuts and more fiscal stimulus to incentivise first home buyers in NSW, it is likely to result in an improvement in activity. It is still early days but already business and consumers have shown more willingness to borrow money for investment, construction and spending.
• When it comes to employment growth the mining sector stands head and shoulders above the rest. Over the past year mining has expanded strongly with phenomenal job growth of almost 27 per cent. Over the medium term the demand for commodities should remain robust, ensuring that mining will be a key driver of the Australian economy. In fact the strength in mining employment goes a long way in explaining the disparity in the state economic growth rates released last week.
• The mining sector posted the biggest job gains in percentage terms over the past year, but its importance needs to be kept in perspective. Mining still only accounts for a quarter of a million jobs, or just over two per cent of all workers. The Health Care sector is over five times the size of mining in terms of employment. The aging population means that more and more workers will be required in Health Care over time.

What do the figures show?

• Over the three months to May, employment across Australia rose by 60,400 – the best quarterly jobs growth since November 2010. Job losses were recorded in just seven of the 19 industry sectors.
• Biggest job gains were in Professional, Scientific and Technical Services, up 41,800, followed by Education & training, up 30,300 and Mining, up 25,500.
• Public administration & safety led the job losses, with employment sliding by 37,300. Next weakest was Other services, down 26,300, and Construction, down 22,900.
• The biggest industry sector – Health care and social assistance – recorded a 6,600 increase in jobs in the three months to May.
• But over the year to May, Health Care was the biggest job gainer, up 62,600, followed by Professional, Scientific and Technical Services, up 77,600 and Mining, up 58,100. In percentage terms, Mining was the biggest job gainer over the year, up 26.8 per cent. What is the importance of the economic data?
• Detailed Labour Force estimates are released the Bureau of Statistics each month with quarterly industry estimates published each quarter. The data assists in highlighting the industries which are expanding and contracting, thus providing additional insights into the current performance of the economy.

What are the implications for interest rates and investors?

• Looking forward the labour market is likely to remain well balanced in the short term. However the key for the Reserve Bank is what happens when activity levels pick up across the economy. A strong skilled migration program will be key to ensuring that wage costs don’t lead to excessive inflationary pressures over the medium-longer term.
• CommSec expects the Reserve Bank to cut rates once more in August to support confidence and insulate the domestic economy from the ongoing European debt crisis.

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