Employment disappointed with a large fall after recent strong gains. After recent strong gains, totalling 80k over the past three months, employment dropped by 27k in June (Barclays: 15k; consensus: flat). This was the first fall since February and the largest fall since December. The fall reflected a large 34k reversal in full-time jobs and and a 7k rebound in part-time jobs, although the mix has been see-sawing over recent months. With the fall, annual growth in employment slowed from 1.0% to 0.4%.
§ There is no monthly industry split of the employment numbers, but the weakness in June was concentrated in New South Wales and Queensland. WA’s labour market continues to tighten with the unemployment rate dropping to 3.5%.
The unemployment rate remains in the low 5s. The unemployment rate ticked up from 5.1% to 5.2% (Barclays: 5.1%; consensus: 5.2%). The unemployment rate has been in a 5.0-5.2% range since October. A year ago, the unemployment rate was 4.9%. The participation rate fell back to 65.2% from 65.4% in May, which is close to the all-time high of 66% reached in 2010. For a different point of view, the number of people on unemployment benefits is published with a delay, but our rough seasonal adjustment has picked up slightly over recent months, although unfortunately there is no reliable relationship between the number of surveyed unemployed and the number of people on welfare (sometimes the number of welfare recipients leads surveyed unemployment, sometimes it coincides and sometimes it lags).
Total hours worked fell sharply in June. Total hours worked and fell by 1.2% in June, which was the largest fall since January. Most of this decline was due to a 1.8% drop in average hours worked by part-time workers. The drop in hours worked may reflect some caution on the part of employers, although the volatility of the poorly-measured hours estimates makes them hard to read in the short term.
Gross flows estimates show slower, but still solid growth in employment. Most of the volatility in the monthly employment data is due to the rotation of new people into the labour force survey. Concentrating on the “gross flows”, which measure those people common to successive surveys, they show that trend employment growth has slowed from a recent peak of almost 30k jobs per month to about 15k. This suggests that the fall in headline employment likely overstates the slowdown in the rate of hiring.
The weakness in employment jars with the strength in activity. Our expectation of a 15k rise in employment reflected our view that the strength in GDP was flowing through into a trend improvement in employment. That is still our base case, as growth in non-farm GDP of more than 4% should be reflected in better growth in employment than the 0.4% increase seen over the past year. If, though, this gap is maintained, it could signal that companies are finally lifting labour productivity after a decade of stagnation. This bears watching because a better productivity performance would ease the RBA’s concerns about long-term pressure on domestic costs, as productivity has been weak for years across a whole range of industries.
The RBA concentrates on unemployment, which is still low. Although the market reacts more to employment, the RBA places more weight on the unemployment rate. This is because it provides a smoother read on the state of the labour market, while the employment estimates have been distorted over recent years by problems in measuring the population, owing to large swings in net migration. Mechanically, the unemployment rate also feeds into its preferred Phillips Curve model of inflation. Unemployment remains low by historical standards and is yet to show the temporary rise expected by the RBA.
Barclays Capital