Australia November Employment Preview: Receeding risks

The Australian Bureau of Statistics will issue its Labour Force Survey for November 12:30 GMT, 19:30 pm EDT December 18^th.

Forecast

Employment is expected to rise 14,000 following October’s loss of 19,000 jobs.  The unemployment rate is predicted to be stable at 5.3% and the labor force participation rate is projected unchanged at 66.0%.

Australian economy, business confidence and employment

The Australian economy has cooled this year from the 2.73% average year over year expansion in 2018. Through three quarters growth has averaged 1.6%.  This decline has been mirrored in the drop in business confidence.

 National Australian Bank’s business confidence Index has fallen steadily since the first quarter of 2018. In March last year the 12-month moving average was 9.75, by that December it was 7.08.  It has continued to slip this year registering 2.17 last month.  The business conditions index 12-month average peaked in May and June of 2018 at 17.333 average and was at a low this November at 3.667. This gauge has seen a modest upturn since August with the score rising from 1 that month to 4 in November.

The almost two-year descent of business attitudes dovetails with the advent and escalation of the US-China trade dispute. Australia’s largest customer for its resources and raw materials is China.   The decline in mainland growth and its manufacturing sector as US tariffs and supply-chain relocation have taken their toll on Australia in turn.

Despite the pessimism in executive suites employment hiring has remained strong. The monthly average this year was 25,000 through September, falling to 19,000 in October with the loss of 19,000 positions.  Unemployment has crept higher from 4.9% in February, which matched the best rate since the financial crisis, to 5.3% in October. But current jobless rate compares favorably to the past decade and except for the 2004-2008 period it is lower than any prior year back to the start of the series in March 1978.

Reuters

Reserve Bank of Australia

The RBA has cut the cash rate three times this year taking it from 1.5% in May to its current 0.75%.  The last reduction was in September 30^th.

As for its New Zealand and American colleagues the RBA was taking out its own insurance policy, in the description of Federal Reserve Chairman Jerome Powell, on slowing global growth and the then unsettled threats of Brexit and the US-China trade dispute.  

The British exit on January 31^st was confirmed in the decisive win by Boris Johnson and the Tories who campaigned on the slogan “Get Brexit Done.” The preliminary deal between the US and China, which though announced will not be signed until probably February, has removed some of the concerns over global trade, but is a long way from restoring the pre-trade war economy.

Neither the US-China trade war nor Brexit had been settled at the last RBA meeting on December 3^rd when the bank noted, “The outlook for the global economy remains reasonable. While the risks are still tilted to the down side, some of these risks have lessened recently.”  

Though it is early, confidence in the global, Chinese and Australian economies has been improved by the prospective end to Brexit and trade war uncertainties.  In the New Year the demise of these twin threats will likely spur the business spending and investment that has been so conspicuously absent  the last three or four quarters.

Australian dollar

The aussi has had a modest 1.5% resurgence against the dollar over the last three weeks but it remains sharply lower on the year. From the February 1^st high of 0.7296 the aussie is 6% lower against the US currency largely on the RBA reduction policy.

Since the last RBA rate cut on September 30^th the Australian dollar has moved in a narrow 0.6700-0.6900 range.

Conclusion

The prospects for the Australian economy have brightened with the ostensible US-China trade accord. Over the past year as business sentiment and GDP have slipped employment has retained a strong outlook.  October’s 19,000 drop in employment, the first loss in 17 months, was rare enough but with firms likely to begin raising investment expenditures and hiring in 2020, it could be the last for a considerable time.