Don’t be alarmed. Yes, today’s employment numbers were weaker than expected (+8000 vs. mkt +25,000) and confirm the labour market has stabilised. But stabilised, not weakened. Employment still rose and the unemployment rate was steady at 4.9%: full employment. Falling full-time jobs is a worry, but we always expected some shift back to part-time. Overall, the structural story of a mining boom and rising inflation is in tact, this just affects timing, that’s all. The latter month of our July/August call is now more likely, following the Q2 CPI print, and the risk for a longer period of RBA-stasis has risen.
Facts
– Employment rose by +8,000 jobs in May, below consensus expectations for +25,000 and HSBC’s call for +40,000.
– The unemployment rate was spot on the market expectation at 4.9% (a touch above HSBC at 4.8%) and has now hovered at that level for three months.
– The participation rate was steady at 65.6%
– Full-time employment fell by -22,000, though if you take the last two months together it is -80,000 jobs.
– Part-time employment rose by 30,000, following a rise of 28,000 jobs.
– The male/female split continues to show a stark contrast. The male unemployment rate is 4.5%, down from a peak of 6.1% in mid-2009, while the female unemployment rate is 5.4% barely much different from its 5.7% peak in 2009.
Implications
It’s now clear that employment growth has indeed slowed from the heady pace of late last year. Since the beginning of the year only 6,000 jobs per month have been created (on net), which is much weaker than the 31,000 per month being created in H2 2010.
Just in the nick of time, from the RBA’s perspective. Why? Because population growth has slowed too, on the back of weaker migrant flows. Labour supply has eased substantially. Since the beginning of the year available labour has only risen by 6,000 persons per month, compared with a heady pace of 29,000 per month in the second half of last year.
Of course, the net result of these – as well as some decline in the record high level of the participation rate – has seen the unemployment rate steady at 4.9-5.0% since the beginning of the year: full employment.
The question is, where to from here? In our view the outlook for labour demand remains strong. The economy is still expected to create a significant number of jobs over the coming years as the mining boom really gets going. That is, the structural story remains in tact.
So the broad story remains, but things may not be happening quite as quickly as expected. Looking across the components of the labour force survey one gets a bit of mixed picture. The full-time/part-time split is a little concerning, as it implies a bit more weakness than expected. But at the same time, a look at the gender split implies a bit more strength, particularly for potential wages growth.
At this stage we are interpreting the full-time slowdown (down 80,000 in past two months) as a shift back in the composition of employment growth after a long period where fewer part-time jobs were created. Though of course this development bears watching carefully and another fall in full-time would be quite an event.
Another interesting development is the continual divergence between male and female unemployment. The male unemployment rate is a very low 4.5% and seems to be continually trending downwards. The female unemployment rate has tracked around the low-to-mid 5s for about two years now.
Why? Well we think the mining boom is creating more jobs in areas that employ males. We also think it is these jobs which could see more pressure on wages. And, after all, it is the link between unemployment and wages that is the key driver of inflation. Suffice to say, low male unemployment may put more pressure on wages growth than if the employment was more evenly spread.
All in all, there is no doubt that today’s report takes a bit of the pressure of the RBA. So we suspect it makes a July move less likely, though we still think an August move is a likely bet, after the RBA gets to see the Q2 CPI read.
Bottom Line
Employment growth has slowed and the unemployment rate has levelled out.
This may give the RBA more time, but we still think a near term rate rise is in the offing.
The latter month of our July/August call is now more likely, after the Q2 CPI print in late July, and the risk for a longer period of RBA-stasis has risen.
Paul BLOXHAM
Chief Economist (Australia and New Zealand) | HSBC Bank Australia Limited