Yesterday’s 7.9k lift in jobs was a touch lower than market expectations which were centred on a lift of 10.0k (CBA(f) +5k). The headline numbers suggest the report was a soft one. But digging below the surface and accounting for sample rotation impacts shows the outcome was relatively decent.
Employment
The reported increase in jobs was modest. But the composition shows that there was a big lift in full‑time jobs partially offset by a sizeable decline in part‑time jobs. Policymakers will welcome these latest developments because they buck the trend observed over the past year in which part‑time job creation materially outweighed gains in full‑time employment.
Unemployment
The unemployment rate lifted a touch to 5.8% but the participation rate also edged higher. The Australian economy needs to generate around 15k jobs a month to keep the unemployment rate flat on an uncharged participation rate. In that context, a rise in the unemployment rate was inevitable based on modest employment growth and a lift in the participation rate.
The trend
Cutting through the volatility shows that monthly jobs growth over the past four months has averaged 13k. Normally such an outcome would be associated with a flat (or possibly increasing) unemployment rate. But a downward move in the participation rate has meant that the “trend unemployment rate” has been moving lower. We expect the unemployment rate to move sideways over the rest of 2016.
Hours worked
Hours worked fell by 0.3% to be just 0.6% higher over the year. This is consistent with stronger growth in part time employment (+134.1k) relative to full time (+94.1k). Average weekly hours worked in full‑time jobs has been steady in recent months at 38.4, after trending down over the first three months of the year. This move lower can be explained by the shift away from mining sector jobs where overtime is common. Average hours worked in part‑time employment remained steady at 16.8 hours.
Rotation impacts
Economic boffins love to analyse statistics and the ABS has provided some statistical fodder in its commentary today on rotation impacts. Each month the ABS surveys about 26,000 households for the labour force release. One‑eighth of the group, about 3,250 homes, leave the survey each month and a new 3,250 household are ”rotated” in. This has the potential to cause big volatility in the numbers because on any given month the employment status of the new households rotated in could be quite different from those rotated out. We were expecting a soft headline number today (i.e. CBA below consensus on employment change) because the group being ‘rotated out’ had a much higher employment to population ratio than then the average of the sample. That is, the odds lay with the incoming group having a lower employment to population ratio than the group going out. Indeed, the ABS confirmed this to be the case yesterday.
The ABS stated that the group being ‘rotated’ in for the June employment report had a lower employment to population ratio than the group it replaced (63.1% vs
63.6%). They also went on to add that the proportion of full‑time workers was
also lower for the group being rotated in compared with the group being rotated out.
In other words, the net impact of group rotation in June was a negative for both the level of employment and the number of full‑time workers. Yet despite this, the overall level of employment lifted in June and the number of full‑time workers rose. To us, that suggests a stronger underlying pulse of job creation than today’s headline numbers imply.
States: Across the States, there was solid jobs growth in Victoria (+24.2k) and SA (+5.9k). Employment declined the most in NSW (‑11.9k) and WA (‑10.3k). Over the year, NSW and Victoria have accounted for the lion’s share of jobs growth, while employment in the mining states of QLD and WA is broadly unchanged compared to a year ago
Leading indicators
The leading indicators of employment growth are mixed. The vacancies series are pointing to only modest growth but the NAB business survey continues to suggest solid employment growth. On balance, this points to modest jobs growth and we tend to agree with the RBA’s assessment that “labour market indicators have been mixed of late, but are consistent with a modest pace of expansion in employment in the near term.
RBA
Yesterday’s figures on their own don’t really shift the dial from an RBA perspective for the August meeting. The report was decent enough for policy to be left on hold. But if their focus is on inflation, as we suspect, then it’s all about the QII CPI report published in two weeks. Essentially the employment data isn’t strong enough to fend off a rate cut but it’s not weak enough to justify one on its own either. The decision around rates in August will come down to the Bank’s assessment of inflation. We expect a soft CPI report in two weeks which is likely to result in the RBA responding with further policy easing. But a rate cut in August is far from guaranteed, particularly given the recent lift in activity in the housing market. Roll on the 27th of July for the QII CPI.