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Another month of encouraging job data

Labour Force

Employment fell by 29,500 in September (survey forecast: -40,000) after rising by an upwardly-revised 129,100 jobs in August (previously reported as an 111,000 increase). Full-time jobs fell by 20,100 and part-time jobs fell by 9,400.

The unemployment rate rose from 6.8 per cent to 6.9 per cent in September (survey forecast: 7.0 per cent).

Hours worked rose from 1.68 million hours to 1.688 million hours (up 0.5 per cent) but were down 5.0 per cent over the year.

Participation rate: The participation rate eased from 64.9 per cent to 64.8 per cent in September.

Spare capacity: In September, the underutilisation rate rose from 18.1 per cent to 18.3 per cent. The underemployment rate rose from 11.3 per cent to 11.4 per cent.

Unemployment across states in September: NSW 7.2 per cent (August 6.7 per cent); Victoria 6.7 per cent (7.2 per cent); Queensland 7.7 per cent (7.4 per cent); South Australia 7.1 per cent (8.1 per cent); Western Australia 6.7 per cent (7.1 per cent); Tasmania 7.6 per cent (6.3 per cent); Northern Territory 4.8 per cent (4.2 per cent); ACT 3.8 per cent (4.0 per cent).

States/territories: In September 2020, four of the states and territories recorded increases in the number of employed people.

A raft of companies is affected by the employment data but especially those dependent on consumer spending.

What does it all mean?

• The healing process continues. After soaring by almost 130,000 jobs in August, employment fell by almost 30,000 positions in September. The jobless rate crept up a notch. And there were mixed results across states and territories. But the latest jobs data continues to surprise and delight, bettering the expectations of economists for yet another month. There is still a long way to go to get the jobless rate below 6 per cent and then more work to get to the ‘full employment’ level near 4.5 per cent. But the results are encouraging.

• On balance the economic recovery process is underway – as the Reserve Bank Governor noted today. If Australia continues to suppress the virus – and there were encouraging figures in Victoria and NSW today – then there are grounds to believe that the jobless rate peaked back in July at 7.5 per cent. Federal Treasury is slightly more negative, expecting the jobless rate to peak in the next 2-3 months at 8.0 per cent.

• JobKeeper and JobSeeker have been remarkably successful in supporting people that have either lost jobs or are working substantially fewer hours than a few months ago. The job schemes will remain in place for as long as they have to. It’s important that the Government help people who are unable to work. But it’s also important not to help people so much that wage subsidies are preferred to actual work. That has been the issue with past recessions – the longer that people are out of work, the less employable they become.

• The stimulatory Federal Budget has yet to work its way across the economy. The hope is that business invests, spends and employs and that consumers spend, rather than save, their tax cuts and one-off payments. Only then will the economy generate the momentum to achieve a sustainable economic recovery.

• The latest job data coincides with more data on job ads from SEEK, showing a 9.2 per cent lift in vacancies in September to be up 20.9 per cent on the year.

What do the figures show?

Labour force – August

• Employment fell by 29,500 in September (survey forecast: -40,000) after rising by an upwardly-revised 129,100 jobs in August (previously reported as a 111,000 increase). Full-time jobs fell by 20,100 and part-time jobs fell by 9,400.

• The unemployment rate rose from 6.8 per cent to 6.9 per cent in September (survey forecast: 7.0 per cent).

• Hours worked rose from 1.68 million hours to 1.688 million hours (up 0.5 per cent) but were down 5.0 per cent over the year.

• Participation rate: The participation rate eased from 64.9 per cent to 64.8 per cent in September.

• Spare capacity: In September, the underutilisation rate rose from 18.1 per cent to 18.3 per cent. The underemployment rate rose from 11.3 per cent to 11.4 per cent.

• Unemployment across states in September: NSW 7.2 per cent (August 6.7 per cent); Victoria 6.7 per cent (7.2 per cent); Queensland 7.7 per cent (7.4 per cent); South Australia 7.1 per cent (8.1 per cent); Western Australia 6.7 per cent (7.1 per cent); Tasmania 7.6 per cent (6.3 per cent); Northern Territory 4.8 per cent (4.2 per cent); ACT 3.8 per cent (4.0 per cent).

• Employment across states in September: NSW +3,300; Victoria -35,500; Queensland +32,200; South Australia +8.700; Western Australia +2,900; Tasmania -2,400; Northern Territory -6,800; ACT -700.

• The ABS noted “With participation relatively unchanged, the decrease in employment and increase in unemployment saw the unemployment rate increase from 6.8 per cent to 6.9 per cent. The Victorian participation rate fell 1.0 percentage points in September and was 3.4 percentage points below March. The Victorian unemployment rate decreased from 7.1 per cent to 6.7 per cent.”

• On hours worked, the ABS noted: “Since the low point in May, total hours worked has increased by 94.9 million hours, recovering more than half (51 per cent) of the 185.5 million hour decrease between March and May. However, hours worked in September were still 5.1 per cent lower than March.”

What is the importance of the economic data?

• The Labour Force estimates are derived from a monthly survey conducted by the Bureau of Statistics. The population survey is based on a multi-stage area sample of private dwellings (currently about 22,800 houses, flats, etc.) and a sample of non-private dwellings (hotels, motels, etc.). The survey covers about 0.24 per cent of the population of Australia and includes all people over 15 years of age, except defence personnel.

What are the implications for investors?

• The Reserve Bank is keen to help the recovery process by easing monetary policy further. The Reserve Bank believes there is likely to be more bang for the buck by easing as economic activity lifts – rather than trying to drive the process. So today’s encouraging jobs figures may boost, rather than reduce, the chances of monetary easing. How times change.

• So rate cuts and/or bond purchases could be announced at either the November or December Board meetings. Note there is a speech by the Deputy Governor a week from today that may flesh out the options.

• The Reserve Bank could indicate that it will buy government bonds with terms of between five and ten years. That serves to lift bond prices (and as a consequence reduced bond yields.

• Ten year bond yields are near 0.76 cent, and the RBA may seek to drive yields close to 25 basis points. The effect is to reduce the servicing cost of government debt and also lower funding costs of financial institutions. Further, lower rates may push the Aussie dollar lower against its greenback counterpart, supporting Aussie exporters, given political tensions with China.

• The Reserve Bank could also trim the cash rate and 3-year bond target rates to 10 basis points. Given that bank bill yields are already around 10 basis points, there are questions about the value of this measure to lead more jobs to be created across the economy.

Published by Craig James, Chief Economist, CommSec