Job losses but grounds for optimism

Labour force

• 

  Unemployment rate is up.

  Jobs down: Employment fell by 3,700 in January after a revised 23,000 loss in jobs in December (previously reported as a 22,600 decrease in jobs). Full-time jobs fell by 7,100 in January and part-time jobs rose by 3,400.

• Jobless rate lifts: The unemployment rate rose from 5.8 per cent to 6.0 per cent in January. (Actually the rise was only from 5.85 per cent to 5.98 per cent). The participation rate eased held steady at 64.5 per cent.
• Hours worked lifts to a record high. The number of hours worked rose by 1.3 per cent in January after rising by 0.2 per cent in December. Hours worked are up 2.0 per cent over the year.
• Unemployment across states and territories: NSW 5.8 per cent (5.8 per cent in December); Victoria 6.4 per cent (6.2 per cent); Queensland 6.1 per cent (5.9 per cent); South Australia 6.6 per cent (6.8 per cent); Western Australia 5.1 per cent (4.6 per cent); Tasmania 7.6 per cent (7.6 per cent); Northern Territory 4.0 per cent (4.3 per cent); ACT 3.8 per cent (3.9 per cent).
• As a result of changes to population benchmarks, the Labour Force is smaller than previously estimated, down by just over 176,000 with employment revised down by 166,000. In December there were 11.463 million people employed, down from the earlier estimate of 11.629 million.

What does it all mean?

• The headline jobs result does look disappointing, particularly coupled with the recent high profile job losses in the car and mining services industry. However delve in a bit deeper and there may be some early grounds for optimism. Almost 60,000 part time jobs were created in the last five months and hours worked has lifted by 2 per cent over the past year and is now holding at record highs.
• It could be the first sign that the jobless rate is close to topping out – with businesses increasing part time workers and working existing staff longer hours before eventually hiring more full time staff. We would have been much more concerned if part-time jobs and hours worked were falling.
• In addition the jobs data is backward looking, highlighting the sluggishness in the broader economy late last year. More timely figures on consumer and business confidence have been more upbeat suggesting that activity levels over the next few months should be firmer. Business conditions are holding at a 34-month high, while businesses forward order books have been expanding and retail prices are lifting – indicators that would support employment growth, provided they are sustained in coming months.
• The latest results are more of a snapshot on how the economy looked 4-5 months ago. Clearly it takes time to take on new staff, from the start of the interviewing process to when the new starters finally commence work. But given the fact that the economy is crawling of a low base while also trying to adjust to the structural imbalances from the pullback in mining investment it is likely the jobless rate will probably edge modestly above 6 per cent over the next few months.
• Businesses have been in a holding pattern for some time, awaiting an improvement in conditions and managing staff hours. A broader view of the labour market data shows that businesses are still more inclined to hire part-time workers and contract staff than take on full-time staff. The people getting jobs probably prefer full-time work to part-time work, and the loss in income, has had an indirect hit on discretionary retail spending.
• While the Reserve Bank would be disappointed and concerned with the sluggishness in the labour market, policymakers would have to be pleased at the way the overall economic recovery is panning out. The housing recovery continues to gather momentum, while rising wealth levels is supporting confidence and in turn spending. In addition the lower Australian dollar should provide a boost to exports in coming months and help to alleviate the risks surrounding the rebalancing of the economy. The key area of concern is likely to be how quickly the labour market recovers. As such we expect the Reserve Bank to maintain a neutral stance over the next few months. Cash rates have likely bottomed.

What do the figures show?

Labour force:

• Employment fell by 3,700 in January after a revised 23,000 loss in jobs in December (previously reported as a 22,600 decrease in jobs). Full-time jobs fell by 7,100 in January and part-time jobs rose by 3,400.
• The unemployment rate rose from 5.8 per cent to 6.0 per cent in January. (Actually the rise was only from 5.85 per cent to 5.98 per cent). The participation rate eased held steady at 64.5 per cent.
• The number of hours worked rose by 1.3 per cent in January after rising by 0.2 per cent in December. Hours worked are up 2.0 per cent over the year.
• The annual employment growth rate fell from 0.5 per cent to 0 per cent in January – a 16-year low. The working age population rose by 27,700 in January after lifting by 30,100 in December. The working age population grew by 1.8 per cent over the past year
• Unemployment across states and territories: NSW 5.8 per cent (5.8 per cent in December); Victoria 6.4 per cent (6.2 per cent); Queensland 6.1 per cent (5.9 per cent); South Australia 6.6 per cent (6.8 per cent); Western Australia 5.1 per cent (4.6 per cent); Tasmania 7.6 per cent (7.6 per cent); Northern Territory 4.0 per cent (4.3 per cent); ACT 3.8 per cent (3.9 per cent).
• NSW recorded the biggest job gains in January, up 8,500, followed by Victoria (up 7,200) and Tasmania (up 5,200). Jobs fell most in Queensland (down 11,700), followed by South Australia and Western Australia (both down 500). In trend terms jobs rose by 300 in the Northern Territory but fell by 500 in trend terms in the ACT.
• As a result of changes to population benchmarks, the Labour Force is smaller than previously estimated, down by just over 176,000 with employment revised down by 166,000. In December there were 11.463 million people employed, down from the earlier estimate of 11.629 million.
• 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.
  • It is likely that the unemployment rate may lift modestly in the early months of 2014 before gently easing over the second half of 2014 as home building rises.
  • The Reserve Bank looks set to remain on the interest rate sidelines over the medium term.
  • Activity levels across the broader economy are only in the early stages of a recovery, largely driven by the improvement in housing activity – which should support employment over the medium term. We expect unemployment to hold in the broad 5.5-6.2 per cent range over 2014.

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?

• It is likely that the unemployment rate may lift modestly in the early months of 2014 before gently easing over the second half of 2014 as home building rises.
• The Reserve Bank looks set to remain on the interest rate sidelines over the medium term.
• Activity levels across the broader economy are only in the early stages of a recovery, largely driven by the improvement in housing activity – which should support employment over the medium term. We expect unemployment to hold in the broad 5.5-6.2 per cent range over 2014.