Australia: Employment outlook remains robust - Westpac

Justin Smirk, Research Analyst at Westpac, suggests that Australia’s leading indicators continue to point to a robust labour market while the soft October print lowers the chance for a soft or negative November print.

Key Quotes

“October was a soft update which we suspect was due to sample volatility”

“It is true that the October rise in employment was softer than expected, +3.7k vs market expectations of an 18k rise, but this should be put into context that October was the 13th consecutive monthly rise in total employment. This is longest stretch of positive employment prints since the run of 15 months from May 1993. The next longest run was 14 consecutive months from August 1979. As such it is not surprising that there are expectations for a negative print sometime soon, even just from survey volatility.”

“However, we are not going to pick some random month for this to occur even more so given that October was a soft month for both employment and participation which may have been a signal that sample volatility was behind the softer number. For more information please see our October Labour Force Economic Bulletin.”

“Westpac’s Job’s Index is currently poiting to an annual pace of employment growth around 2.6%yr and it suggest that it can hold this pace well into Q2 2018. In the October Labour Force Survey total employment growth was running around 3.0%yr, a bit higher than the Jobs Indexis pointing to but not out of the bound of the normal volatility in this relationship.”

“In addition, the Westpac/Melbourne Institute Unemployment Expectations Index (remember rising unemployment expectations suggest that household are expecting a deterioration in labour market conditions) have fallen 8.2% in the year to December taking the trend to 8% below the 10 years average, a very strong signal that household are experiencing a robust labour market. The last time the index was stronger than this was the –12% print back in April 2011.”

“For these reasons we are not looking for any meaningful moderation in the pace of employment growth. Our above market forecast for a 25k rise in employment will see the annual pace of growth ease back a touch to 2.8% year and the three month average change drop a touch to +21.7k in November from +23.3k in October.”

“Unemployment forecast to be flat but with upside risks

Turning to unemployment in the October survey the rate fell to 5.4%, a low point in the series going back to February 2013 but still above most estimates of full employment (around 5.0%). However, given the every soft employment print in the month the fall in unemployment was due to a decline in participation to 65.1% from 65.2% with a strong focus on male participation; down from 70.7% to 70.5%. The overall participation rate drop appears to be concentrated in Vic, down to 65.7% from 66.3%, back to near the level seen in February this year.”

“For November, given our strong employment forecast we are also expected a jump up in participation to 65.2%. On current population growth estimates this should generate a 32.4k rise in the labour force which, with rounding, will see the unemployment rate steady at 5.4%. However, it is possible that the rise in participation could be larger and thus it is possible that unemployment will rise in November even given a robust employment print.”