Market Watch

Chief Market Strategist Evan Lucas discusses the latest jobs numbers and why there's some cause for concern.

By ·
20 Apr 2018

Interesting that the micro environment is coming into its own this week with the banking Royal Commission laying bare damning facts and long may it reign. It will cause specific movements through the ASX as each financial firm takes the stand, remember that financial services make up over 30 per cent of the ASX and this commission is sure to move the dial in overall performance especially considering we’re  only two- weeks off bank earning season.

Looking back the domestic macro environment of week and two things catch my attention. employment and the minutes.

The Granular:

  • Employment change for March: 4900 jobs added versus consensus of 20,000 (a miss) the running average growth rate fell to 2.7 per cent
  • Unemployment rate for March: 5.5 per cent in line with consensus, down from 5.6 per cent in February
  • Participation rate: Dropped back 10 basis points (bps) from the record print in February to 65.5 per cent this missed consensus of 65.7 per cent.
  • Hours worked: this was up 0.3 per cent month on month and 3.2 per cent year on year. This is a feeder for the wage price index.

Keys to the release:

The previous two employment change results were revised down due to ‘annual seasonal re-analysis’. This is the rotation of 1/3 the 60,000 households surveyed – it creates a seasonal blip every year – the overall effect on employment was minor. However, February went from a positive print to a negative one.

What one can conclude from the trend figures however is that yearly growth in employment has slowed by around 50 basis points to a 3 per cent year on year growth rate. The caveat here is that this rate is still well above the longer-run average.

Full vs part time:

Full-time jobs fell by 19,900 while part-time jobs added 24,800. The seasonal re-analysis added a large caveat to these numbers however can’t ignore that trend growth in full-time employment in 2018 is softening compare this to the robust growth in 2017.

What is also interesting is male to female full-time job growth. Female full-time job growth collapsed in March a however, overall the trend is much more positive. Over the past three years female employment has surged, and that is likely to continue due to the trend in participation.

Both male and female participation fell. Although female participation fell from record highs, it remains in a very strong up trend. Overall participation has continued to strengthen, however, this suggests that underutilisation and underemployment will remain an issue for wage growth as this filters through.

Hours worked is interesting as the annual growth rate (in trend terms) eased marginally to 2.6 per cent year on year -still double the 10-year average.

The final take:

Data suggests the 2017 momentum in jobs growth has begun to labour in early 2018. However,  the leading indicators on the labour market such as NAB’s business surveys, ANZ’s job ads, Westpac’s consumer sentiment etc. remains resilient and suggest the slack in the labour market will tighten although slower than forecasted

The Minutes:

Nothing new– the RBA remained upbeat on domestic environment, however GDP growth is likely to ‘exceed potential’ in 2018, with potential rate estimates at 2.75 per cent. Considering the current estimate is 3.25 per cent for 2018 you could infer that GDP will miss forecasted but beat potential therefore GDP will be around 3 per cent, aka ‘below trend’.

The minutes reiterated the RBA's desire that “the next move in the cash rate would be up, rather than down” is consistent with the Governor's position since taking over from Glenn Stevens’.

However, macro-economics suggest this desire is just that and RBA will remain on the side-lines for the foreseeable future

 


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