Australian Labour Force Survey: Solid update with strong gains in both employment and participation - Westpac

Justin Smirk, Research Analyst at Westpac, explains that Australia’s employment gains are broad based in August and associate with a solid rise in participation particularly for females.

Key Quotes

“August provided more solid update on the Australian Labour Force. The 54.2k gain was well above Westpac’s and market’s expectation for +20k boosting the annual pace a 2.7%yr which is at the top end of our Westpac’s Jobs Index is suggesting employment growth should hit by early 2018. As the Jobs Index continues to strengthening are not looking for a slowdown in employment growth until year end or early 2018 and on the current trajectory we see the annual rate hitting 3.0% before the end of the year.”

“There has been a very significant lift in employment through 2018. If you remember in the year to Feb total employment gain was just 106.9k gain; in the year to June this has lifted to 248.5k. The Australian labour market went through a soft patch in 2016 that was particularly pronounced through August to November when the average gain in employment per month was a paltry 2.2k. The Australian economy has not only bounced out of this soft patch and but the pace of growth continues to accelerate.”

“There is the usual volatility in full-time/part-time employment but over the past few months the results are more indicative of a robust labour market. Full-time employment gained 40.1k in Aug for an average gain of 30.5k in the past three months. In the year full-time employment gained 251.2k for a 3.1%yr pace with the pace of full-time employment growth continuing to accelerate ahead of the growth in working age population. Part-time employment fell 14.1k following and in the year to Aug part-time employment has lifted 2.0%yr slower than that for full-time employment but still broadly inline with our Jobs Index.”

“A further sign of the overall strength of this report was the 0.4% lift in hours worked which has resulted in the annual pace for total hours worked lifting to 2.6%yr which is the fastest pace seen since December 2015.”

“Further highlighting the strength of the Aug Survey the strong gains in employment were associated with a 0.2ppt lift in participation to 65.3 resulting in a 52.1k surge in the labour force. This was enough to hold the unemployment rate flat at 5.6% (at two decimal places the unemployment rate was 5.60% from 5.63%) so we would argue that the flat print on unemployment should not be taken for a soft update on the labour market. In fact, the ABS reports that the group that rolled into the survey had a lower employment to population rate and a higher unemployment rate than both the group it replaced and the entire sample. As such, you can’t point to sample rotation for the better than expected result.”

“We should note that while the gain in participation have come from both males and females, the gains in from the females have been somewhat greater and they do appear to be on a more solid uptrend. By state, the strongest gains in female participation have been in Qld but they are also improving in NSW while Vic continues to hold very high levels of female participation.”

“There is a promising sign in the decline in youth unemployment down to 12.7% from 12.8% in Jul and 12.9% a year earlier. We are watching to see if this getting any further traction if the employment gains remains as good as they have been of late.”

“Underemployment has improved in the last three months. Underemployment, which is defined as those workers who are working but would like to work more hours, fell to 8.6% from 8.8% in May. A year earlier the underemployment rate was 8.3%.”

“By state, there were solid gains in just about all of the states; NSW (+12.9k), Vic (+18.6k), Qld (16.7k), SA (2.1k) while WA was basically flat (–0.1k). Not surprising the two biggest states reported a flat unemployment rate – NSW (5.0%), Vic (6.1%) – while it fell in Qld (5.7% from 6.2%), SA (5.7% from 6.2%) and Tas (6.0% from 6.3%) but rose a bit in WA (5.9% from 5.4%).”

“All up this was positive update on the labour market following the robust trend sent by the leading indicators. While we still expect the monthly numbers to be quite volatile, the Jobs Index is pointing to total employment growth could hit 2¾%yr by early 2017. We have already exceeded this and unless we see further gains in the employment components of the business surveys it looks as if we may get an extended overshoot of employment that quite often follows an extended undershoot.”