Ryan Felsman

Labour force – October 2023

• The unemployment rate ticked up to 3.7% in October, reversing the dip down in September.
• Employment rose by 55k in October, driven by a 37.9k increase in part‑time employment.
• Growth in hours worked slowed further to 1.7%/yr, and trend‑adjusted hours worked has declined over H2 23.

The labour market remains tight but there are pockets of cooling

The October labour force survey showed a tick up in the unemployment rate to 3.7%.  That was in line with our estimate and also the market consensus.  It follows the temporary dip to 3.6% in September and is unchanged from the unemployment rate figure in July and August.

The seasonally adjusted unemployment rate has bounced around over recent months.  The trend unemployment rate, as shown in the facing chart, showed that there has been a clear pick‑up in the upward trajectory since its trough in October last year.  However, the unemployment rate remains much lower than implied by its historical relationships with other labour market indicators such as surveyed measures of unemployment expectations and job ads.

The underemployment rate was unchanged at 6.3%.  It stands well above the trough of 5.8% seen in February, but has been little changed over the second half of this year.

The October figures also showed a bounce in employment, with a 37.9k increase in part‑time employment and a smaller 17.0k increase in full‑time employment.  The 55k lift in employment follows the modest 7.8k (revised from 6.7k) increase in September and 70.3k (revised from 63.3k) in August.

There has been a clear shift in recent months in the main driver of employment growth, as the facing chart shows.  Employment growth over 2022 had been characterised by big lifts in full‑time employment.  More recently, that has shifted to part‑time jobs growth.  Over the past four months, part‑time employment has increased by 3.9%.  Over the same period, full‑time employment has decreased by 0.3%.

Hours worked rose by 0.5% in the month and just 1.7% over the year to October.  Trend‑adjusted hours worked has been declining since July.  The 1.7%/yr lift in hours worked compares with the 3.0%/yr increase in employment.  The stronger pace of jobs growth lines up with the relative strength in part‑time jobs and also the faster pick‑up in underemployment.  This switch though could be seen as a sign of cooling in the labour market.

The participation rate rose back to a record high 67.0%.  That reverses the tick down we saw in September.  The working age population continued to increase further, up by 55.2k in the month.  The working age population is now up by 2.9% over the year to October.

As had been flagged in an earlier ABS release, this month’s labour force report was influenced by the Aboriginal and Torres Strait Islander Voice referendum.  The referendum was held on 14 October, and the survey’s reference period was from 1‑14 October.  The ABS noted that the referendum had a temporary effect on employment, hours and participation in October.  Given that, we could expect some payback next month, perhaps more so in employment, given that was stronger than expected.  However, the ABS stated that the temporary impact of the referendum cannot be quantified.

The cohort details in the survey added to the weight of evidence that the labour market is cooling.  In particular, the youth unemployment rate rose further in October, to 9.2%, the highest since late 2021 (see facing chart).  These figures can be volatile month‑to‑month, but the trend youth unemployment rate has increased by 1 percentage point, up from 7.7% a year ago to 8.7%.

By state, WA saw the largest tick up in unemployment (+0.5ppts to 3.8%).  Qld (+0.4ppts to 4.3%) and Vic (+0.3ppts to 3.8%) also saw increases.  There were more modest changes in NSW (+0.1ppts to 3.4%) and SA (‑0.1ppts to 3.6%).

Last week’s labour force survey follows on from yesterday’s Wage Price Index data, covered by my colleague Belinda Allen. We would view both the wages and jobs numbers as broadly in line with the RBA’s forecasts.  As such, the RBA will be focusing on the inflation data ahead of the December Board meeting.  The October CPI indicator (due out 29/11) will be the one to watch.

What does it mean for investors?

Aussie employment jumped in October, after modest gains in September, though the unemployment rate still ticked higher as more people went looking for work and strong inbound migration boosted the supply of workers. The economy added 55,000 jobs in October, more than double economists’ forecasts of 24,000.

But the hiring frenzy was driven primarily by part-time jobs – which surged by 37,900 positions – in October. The tilt towards part-time job hiring – with 161,500 positions added in the past four months – suggests that employers are becoming more cautious about hiring permanent workers amid a jump in borrowing costs and slowing consumer demand. That said, the lift in part-time staff may also reflect hiring for the Australian Indigenous Voice referendum that was conducted on October 14.

The number of full-time positions rose by 17,100 last month, but a net 29,800 full-time jobs have been shed since June.

Australia’s unemployment rate rose from 3.55% in September to 3.72% in October, the highest level since July. The jobless rate has hovered between the range of 3.4% – 3.7% since June last year, near 50-year lows.

Higher unemployment was driven by more people looking for work, with the participation rate increasing from 66.8% in September to a record high 67% in October.

Record inflows of overseas migrants and international students have boosted the supply of labour to meet demand, with population growth up by 55,200 people. So while employment growth was solid at 55,000 in October, Australia’s labour force expanded by an even larger 83,000 people.

Monthly hours worked in all jobs rose by 0.5% to 1,939.4 million hours. Hours worked are up 1.7% on a year ago, but down from 5% in the middle of this year. Last month, hours worked lifted 2.1% in Queensland but fell 3.8% in Tasmania. “The recent slowdown in the growth of hours worked may suggest that the labour market is starting to slow, following a particularly strong period of growth,” said Bjorn Jarvis, the Bureau of Statistics head of labour statistics.

The labour market remains tight, though measures of spare capacity continue to edge higher from October 2022 cycle lows. Australia’s underemployment rate remained at 6.3% in October. The underutilisation rate, which combines the unemployment and underemployment rates, rose 0.1 percentage points to 10%.

The jobless rate in NSW is the lowest across Australia at 3.4% in October, with 20,100 jobs added in the month. Victoria gained 34,400 jobs last month but the jobless rate crept up to 3.8%. Queensland added 10,600 positions with the jobless rate at 4.3%. And Western Australia gained 9,500 jobs with the unemployment rate higher at 3.8%. Increases were more modest elsewhere.

Forward-looking indicators of jobs growth have begun to moderate. In fact, Jobs & Skills Australia yesterday reported that national online job advertisements fell by 3.8% or 10,380 job advertisements to stand at 261,174 in October. Ads are down by 9.1% or 26,235 available positions on a year ago. SEEK job ads were reported down 5% last month, and 19.9% lower on a year ago, while applications per job ad are up 4.1%.

There was little market reaction to the data showing that Australian employment had beat economists’ forecasts with a rise of 55,000 in October, though that was balanced by a lift in the unemployment rate to 3.7%.

The higher jobless rate may also soothe the Reserve Bank’s (RBA) concerns over solid wage inflation. RBA Governor Michele Bullock recently described the labour market as “not as tight as it was”, noting that some leading indicators such as job vacancies have begun to ease from high levels.

And with record migration helping meet the demand for labour, traders doubt the RBA will hike interest rates again in the near term, following last week’s quarter point lift to 4.35%. Futures imply only a 7% chance of another rise in December. That said, money markets still see a 60% chance of another hike to 4.60% in the first half of next year, with low unemployment likely to keep wages growth elevated. The next key data point will be the monthly consumer price index (CPI) indicator released on November 29.

The Aussie dollar (AUD) edged higher from US65.04 cents to US65.16 cents immediately following the release of the job report, but the AUD has since slipped to around US64.60 cents.

The interest-rate sensitive Australian 3-year government bond yield rose from 4.197% to 4.206% following the labour force survey, but has since eased to near 4.178%.

The S&P/ASX 200 index traded slightly lower at the open, before losing momentum over Thursday’s trading session, as investors evaluated Wednesday’s strong wages data against today’s mixed jobs report.

The initial response to the Aussie jobs report was muted, but news that Chinese home prices fell by the most in eight years in October, weighed on risk sentiment. At the time of writing, the ASX 200 index was down around 40 points or 0.6% to near 7,065 points, with rate-sensitive technology and real estate shares down 0.9% each.

By Ryan Felsman

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