Labour force

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  Employment rose again in April.

  Jobs rise again: Employment rose by 14,200 in April after a revised 14,200 lift in jobs in March (previously reported as an 18,100 increase in jobs). Full-time jobs rose by 14,300 in April after falling by 22,800 in March. Part-time jobs were unchanged after rising by 44,600 in March.

• A total of 106,000 new jobs have been created in the first four months of 2014 – marking the best start to a calendar year in six years.
• Jobless rate holds steady: The unemployment rate held steady at 5.8 per cent in April. The participation rate fell from 64.8 per cent to 64.7 per cent.
• Hours worked fell: The number of hours worked fell by 2.5 per cent in April after rising by 0.5 per cent in March. Hours worked are down 2.5 per cent over the year. The ABS notes the timing of Anzac day and Easter may have affected the hours worked statistics.
• Unemployment across states and territories: NSW 5.4 per cent (5.2 per cent in March); Victoria 6.4 per cent (6.4 per cent); Queensland 6.3 per cent (6.1 per cent); South Australia 6.3 per cent (7.1 per cent); Western Australia 4.9 per cent (4.9 per cent); Tasmania 7.6 per cent (7.6 per cent); Northern Territory, trend 3.8 per cent (3.8 per cent); ACT, trend 3.6 per cent (3.5 per cent).

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• Consumer sentiment fell by 3% in February to its lowest level since May last year.
• Sentiment declined for a third month in a row as expectations of further RBA interest rate cuts dissipated.
• A soft jobs market is also weighing on consumer sentiment.  The Unemployment Expectations Index rose by 2.3% in February – its sixth consecutive monthly rise.

The Westpac‑Melbourne Institute Index of Consumer Sentiment fell to 100.2 in February to sit barely in positive territory (100 means that the number of optimists equals the number of pessimists).  Sentiment is 7.5% lower than it was a year ago.  The result is in stark contrast to business confidence, which rose for the first time in four months in January.

Sentiment has trended down over the past three months.  A weak jobs market has exerted downward pressure on consumer confidence.  And this has been compounded over the past month by a lift in inflation which has ruled out the prospect of near term rate cuts.

RBA meetings always attract media attention.  And the message following last Tuesday’s meeting from RBA Governor Glenn Stevens was telling with the removal of the RBA’s mild easing bias.  Namely, that the Bank is less comfortable with the inflation outlook.  So in our view the further rate cuts are off the table.

A soft jobs market has opened up the gap between wages growth and domestic inflation.  This means that consumers feel cost of living pressures more acutely.  This has weighed on the two family finances component indices.  Recent falls in global share markets are also likely to have weighed on sentiment over the month.

Looking through the detail reveals that four of the five component indices decreased in February.  The largest falls were in the component indices about economic conditions next 12 months (‑7.1%) and 5 years (‑4.6%).  This was followed by the component index about family finances vs a year ago.

The fall in consumer sentiment goes against the sustained uptrend in retail sales observed since August – there is usually a positive correlation between the two.  The latest retail trade figures show that consumer spending at domestic retailers held up well over the Christmas period while sentiment has slid.  If we marry the sentiment figures with the retail trade figures then it looks like consumers are redirecting spending onshore due to a lower AUD rather than spending more.

The time to buy a dwelling index fell slightly over the month, most likely due to consumers registering the message from the RBA that interest rates are unlikely to fall further.

The Westpac‑Melbourne Institute unemployment expectations index was also published today. It rose by 2.3% in February and has risen in each of the past six months.  It is at a high level overall, confirming consumer fears over job security remain elevated.  Weak official jobs figures and significant media coverage around concerns over Australia’s manufacturing industry have contributed to unemployment fears.

The focus now turns to jobs figures for January, published tomorrow.

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• Full time jobs the key: In May part-time jobs fell by 7,200 after rising by 25,200 in April. Full-time jobs rose by 46,100 after falling by 18,000 in April.
• Jobless rate rises: The unemployment rate rose from 4.9 per cent to 5.1 per cent in May. The participation rate rose from 65.2 per cent to 65.5 per cent.
• Males workers are having a far easier time in the workforce: The gap between female and male underutilisation rates was the largest in 7½ years.
• Fewer hours worked: The number of hours worked fell by 0.3 per cent in May to be up 0.9 per cent in annual terms.
• Unemployment across states and territories: NSW 5.0 per cent (4.9 per cent in April); Victoria 5.4 per cent (5.3 per cent); Queensland 5.7 per cent (5.1 per cent); South Australia 5.1 per cent (5.2 per cent); Western Australia 3.8 per cent (3.8 per cent); Tasmania 6.6 per cent (8.1 per cent); Northern Territory 4.0 per cent (4.0 per cent); ACT 3.4 per cent (3.5 per cent).

What does it all mean?

• The latest employment figures are certainly heartening – a pickup in jobs across the economy. For the last year the missing ingredient in the domestic economy has been confidence, however this week may just change all that – providing a real catalyst for a turnaround in confidence. Rate cuts, strong economic growth data and the latest employment figures should 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.
• 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 a flat result for May, but the result was far more upbeat with almost 39,000 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.
• But the result needs to be put into perspective. The job gains in April were revised lower to show almost half the job gains previously reported. In addition total hours worked fell in May while the unemployment rate ticked higher. What is clear is that the labour market is healthy but going sideways. Yes it was encouraging that employment grew for the third consecutive month but more forward looking indicators like job advertisements have suggested that further labour market gains may be more circumspect.
• Still comparing the job market in Australia with markets in Europe or the US is like comparing chalk with cheese. Australia’s job market remains healthy, supporting growth in the broader economy. And it is still the case that an extra 86,500 odd workers now have jobs compared with three 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 – however as confidence improves activity levels will pick up.
• Interestingly male workers are having a far easier time in the workforce than their female counterparts. The gap between female and male underutilisation rates (measures the proportion people that are unemployed or want to work longer hours) is the largest in 7½ years. The structural shift taking place across the economy seems to have something to do with the changing dynamics of the Australian workforce. More demand for male orientated jobs like mining and construction continue to outpace female orientated roles like admin, retail and service orientated sectors.
• The rate cuts over the last couple of months will help to support activity in coming months and provide businesses with a bit more breathing space – especially given that trading conditions are difficult. In addition the downside risks to global growth – particularly the slowdown in China and ongoing Euro zone debt concerns – will ensure businesses still show a level of cautiousness. As a result it is more likely that businesses will hold onto current staff rather than significantly adding to their workforce.
• The jobs data is unlikely to make waves at the Reserve Bank. Rather the central bank will be more focused on the current situation in Euro Zone and even the slowdown in China. Any escalation of the Euro Zone debt crisis is likely to prompt the Reserve Bank to move sooner rather than later when it comes to rates. In our judgement – and assuming Europe still muddles through in the next few weeks – the next interest rate cut won’t occur until August. Policymakers will want to get a better gauge of the impact from the recent rate cuts while conserving ammunition in case global conditions deteriorate sharply.

What do the figures show?

• Employment rose by 38,900 in May after rising by a revised 7,100 (previously 15,500 in April). Economists had expected a flat result. In May part-time jobs fell by 7,200 after rising by 25,200 in April. Full-time jobs rose by 46,100 after falling by 18,000 in April.
• The annual employment growth rate rose from 0.6 per cent to 1.0 per cent in May. The working age population rose by 19700 in May after lifting by 19,500 in April. The working age population grew by 1.22 per cent over the past year – equal to the smallest gain in almost 12 years.
• The unemployment rate rose from 4.9 per cent to 5.1 per cent in May. The participation rate rose from 65.2 per cent to 65.5 per cent.
  The number of hours worked fell by 0.3 per cent in May to be up 0.9 per cent in annual terms.
  Unemployment across states and territories: NSW 5.0 per cent (4.9 per cent in April); Victoria 5.4 per cent (5.3 per cent); Queensland 5.7 per cent (5.1 per cent); South Australia 5.1 per cent (5.2 per cent); Western Australia 3.8 per cent (3.8 per cent); Tasmania 6.6 per cent (8.1 per cent); Northern Territory 4.0 per cent (4.0 per cent); ACT 3.4 per cent (3.5 per cent).
• NSW led the job gains in May (+30,300), followed by Victoria (+13,500), Western Australia (+6,000), and South Australia (+2,400). Jobs fell most in Queensland (-5,700) and Tasmania (-4,300). In trend terms employment fell in Northern Territory (-300) and fell in the ACT (-300).

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?

• As activity levels pick up over the coming year 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.

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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.

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