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Aussie payrolls lift; RBA explains QE extension

Pre-pandemic lift in number of Aussie businesses
Weekly Payrolls; RBA Board Minutes; Business counts

Survey of payrolls & wages: The Bureau of Statistics (ABS) reported that national payroll jobs rose by 1.3 per cent and wages increased by 0.4 per cent between the week ending 16 January 2021 and the week ending 30 January 2021.

Annual payrolls growth: National payroll jobs are now level with a year ago. Annual growth in payrolls between February 1, 2020 and January 30, 2021 was strongest in the Northern Territory (+3.5 per cent), Western Australia (+2.5 per cent) and South Australia (+2.4 per cent). But payrolls fell 1.7 per cent from a year ago in both Victoria and Tasmania.

Reserve Bank Board meeting minutes: At the February 2, 2021 Board meeting Reserve Bank policymakers announced the extension of the government bond-buying program (‘Quantitative Easing’) by a further $100 billion from mid-April. Board members also signalled that interest rates probably won’t lift until 2024 “at the earliest”.

Business counts: The Australian Bureau of Statistics (ABS) has released annual data on business counts. Over the year to June 30, 2020 the number of actively trading businesses in the Australian economy increased by 2 per cent or 46,651 to 2,422,404. Business entries were up 14.5 per cent and business exits were up 12.5 per cent from a year ago.

The payroll and wage data helps government with decisions on assistance measures for households and businesses. The Reserve Bank Board minutes are important in gauging policy settings.

What does it all mean?

• Following some large seasonal swings in late December and early January, Aussie payroll jobs lifted in the second half of January. Remarkably, the Bureau of Statistics (ABS) reported that national payroll jobs are back at pre-pandemic levels with annual payroll job growth flat between the weeks ending February 1, 2020 and January 30, 2021.

• Of course, the labour market recovery remains uneven with the relatively ‘virus free’ states and territories posting the strongest pace of payroll job growth over the year. The strongest performer was the Northern Territory (up 3.5 per cent), followed by Western Australia (up 2.5 per cent), South Australia (up 2.4 per cent), the ACT (up 0.3 per cent) and Queensland (up 0.2 per cent). Payroll jobs edged lower in New South Wales by just 0.1 per cent over the year to January 30, 2021, despite persistent virus ‘flare ups’. But payrolls fell 1.7 per cent in both Tasmania and Victoria from a year ago.

• The deluge of Reserve Bank communication after the summer hiatus has continued with the release of the minutes of the February Board meeting. Since the meeting, Governor Philip Lowe has delivered two speeches, on top of extensive commentary in the Statement of Monetary Policy. That said the Board’s decision to extend its $100 billion government bond-buying program from mid-April was ‘front of mind’ for most economists who were caught ‘flat footed’ by the earlier-than-anticipated announcement. In the minutes, Board members said “The bond purchase program had helped to lower interest rates and had contributed to a lower exchange rate than otherwise,” and “a number of central banks in other advanced economies had announced extensions of their bond purchase programs to at least the end of 2021.”

• So there you have it. With the Aussie dollar within a whisker of US78 cents in trading today the Reserve Bank appears concerned that the economic recovery could be up-ended by upward pressure placed on the currency by the more aggressive ‘Quantitative Easing (QE)’ bond-buying programs deployed by the US Federal Reserve, European Central Bank and the Bank of Japan. A stronger Aussie dollar could damage Australia’s export sector and limit the strong recovery in job hiring.

• Policymakers also expressed some concern about the winding-back of fiscal stimulus measures at the end of March, most notably the JobKeeper wage subsidy. The minutes stated, “An important near-term issue was how households and businesses would adjust to the tapering of some fiscal support measures and to what extent they would use their stronger balance sheets to support spending.” Given this uncertainty, the Reserve Bank Board said that it expects “very significant” monetary support to be needed “until 2024 at the earliest” as it’ll take years to tighten the labour market sufficiently to meet its inflation and unemployment goals.

What do you need to know?

Weekly payroll and wages – Week ending January 30, 2021

• According to the Australian Bureau of Statistics (ABS), in the period from January 16, 2021 to January 30, 2021, Australian payroll jobs rose by 1.3 per cent and national wages increased by 0.4 per cent.

• Payrolls across state and territories from January 16, 2021 – January 30, 2021: NSW (+1.2 per cent); Victoria (+1.0 per cent); Queensland (+1.8 per cent); South Australia (+1.8 per cent); Western Australia (+0.6 per cent); Tasmania (+2.2 per cent); Northern Territory (+2.0 per cent) and the ACT (+1.4 per cent).

• Between the week ending 16 January, 2021 and the week ending 30 January, 2021 the largest changes across industry were:

• Payroll jobs: Administrative and support services payrolls increased by 2.7 per cent and Accommodation and food services, and Education and training payrolls both increased by 2.6 per cent.

• Total wages: Information media and telecommunications wages increased by 4.7 per cent and Accommodation and food services lifted by 3 per cent.

• Employment size payroll jobs: Under 20 employees (+0.6 per cent); 20-199 employees (+1.4 per cent); 200 employees and over (+1.5 per cent).

• The ABS reported, “The Mining industry wages estimates in March and September may include annual bonuses. The Education and training industry has a marked seasonal low across December and January.”

Minutes of the Reserve Bank Board meeting held on February 2, 2021

Last paragraph: “Members affirmed that the cash rate would be maintained at 10 basis points for as long as necessary. They continued to view a negative policy rate as extraordinarily unlikely. The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market. The Board does not expect these conditions to be met until 2024 at the earliest.”

• The Decision: “The Board reaffirmed the following policy settings, namely:

• a target for the cash rate of 0.1 per cent

• an interest rate of zero on Exchange Settlement balances held by financial institutions at the Bank

• a target of around 0.1 per cent for the yield on the 3-year Australian Government bond

• the expanded Term Funding Facility to support credit to businesses, particularly small and medium-sized businesses, with an interest rate on new drawings of 0.1 per cent

• the purchase of $100 billion of government bonds of maturities of around 5 to 10 years at a rate of $5 billion per week following the Board meeting on 3 November 2020.”

• Forward guidance: “Members concluded that very significant monetary support would be required for some time, as it would be some years before the Bank’s goals for inflation and unemployment were achieved. Given this, it would be premature to consider withdrawing monetary stimulus.”

• Decision to extend the government bond-buying program (‘Quantitative Easing’): “The Board assessed that the bond purchase program had helped to lower interest rates and had contributed to a lower exchange rate than otherwise. Australia’s government bond markets continued to function well and further purchases were not expected to be a source of market dysfunction.

• A number of central banks in other advanced economies had announced extensions of their bond purchase programs to at least the end of 2021, and there was a widespread expectation among market participants that the Bank’s program would be extended in some way. Given this, if the Bank were to cease bond purchases in April, it was likely that there would be unwelcome significant upward pressure on the exchange rate.

• Members discussed the outlook for the economy and concluded that it would be some years before the goals for inflation and unemployment were achieved. In view of these considerations, and the fact that the cash rate was at its effective lower bound, the Board resolved to purchase an additional $100 billion of bonds issued by the Australian Government and states and territories following the completion of the existing bond purchase program in mid April.”

• On its 3-year government bond yield target: “The Board determined that the 3-year yield target would be maintained. Later in the year, the Board would need to consider whether to shift the focus of the yield target from the April 2024 bond to the November 2024 bond. In considering this issue, members would give close attention to the flow of economic data and the outlook for inflation and employment.”

• On fiscal stimulus: “An important near-term issue was how households and businesses would adjust to the tapering of some fiscal support measures and to what extent they would use their stronger balance sheets to support spending.”

Australian Bureau of Statistics (ABS) survey on business counts – Year to June 30, 2020

• The Australian Bureau of Statistics (ABS) has released annual data on business counts. Over the year to June 30, 2020 the number of actively trading businesses in the Australian economy increased by 2 per cent or 46,651 to 2,422,404. Business entries were up 14.5 per cent and business exits were up 12.5 per cent from a year ago.

• By industry, the ABS reported, “In 2019-20 three industries accounted for more than half of the net annual increase in businesses, these were: Transport, postal and warehousing (annual growth up 5.5 per cent); Professional, scientific and technical services (up 2.5 per cent) and Health care and social assistance (up 5 per cent).”

• By region, the ABS reported, “In 2019-20 there was a:

• 3.8 per cent increase in the number of businesses in Tasmania, the largest of any state/territory, with an increase of 1,500 to 40,955 total.

• 3.0 per cent increase in the number of businesses in Victoria, with an increase of 19,491 to 660,214 total.

• 0.5 per cent increase in the number of businesses in Western Australia, the lowest of any state, with an increase of 1,156 to 234,103 total.”

• By type of legal organisation, the ABS reported, “In 2019-20 there was a:

• 3.5 per cent increase in sole proprietors, with an increase of 23,292 to 687,571 total.

• 3.3 per cent decrease in partnerships, with a decrease of 8,115 to 240,016 total.

• 21 per cent entry rate for sole proprietors, with 139,323 entries.”

• By employment size, the ABS reported, “In 2019-20 there was a:

• 12.3 per cent decrease in businesses with 20-199 employees, with a decrease of 6,683 to 47,649 total.

• 5.3 per cent decrease in businesses with 200 or more employees, decreasing by 231 to 4,160 total.

• 3.8 per cent increase in non-employing businesses, increasing by 55,933 to 1,546,865 total.”

• By turnover size, the ABS reported, “In 2019-20:

• 93 per cent of businesses had turnover of less than $2 million.

• 28.4 per cent of businesses had turnover of less than $50,000.

• 79.8 per cent of exits had turnover of less than $200,000.”

What is the importance of the economic data?

• The ABS data Weekly payroll jobs and wages “provides indicative information on the economic impact of the COVID-19 coronavirus on employees, including changes in employee jobs, changes in total wages, and changes in average weekly wages per job.”

• The Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.

• The ABS release on counts of Australian Businesses includes counts of actively trading businesses, rates of entry to and exit from the market sector of the economy, and rates of business survival.

What are the implications for investors?

• The health of Aussie businesses will come into sharper focus in 2021 following the end of ‘safe harbour’ insolvency moratoriums on December 31, 2020. And with the JobKeeper subsidy likely end on March 28, 2021, business insolvencies are expected to rise after hitting 20-year lows in August 2020.

• Prior to the early pandemic period, the number of actively traded Aussie businesses was increasing. In fact, data from the ABS today shows that the number of firms increased by 2 per cent over the year ended June 30, 2020 to 2.42 million. But difficult business conditions were evident in the unevenness of industry gains and losses over the period. Just three industries – Transport, postal and warehousing (annual growth up 5.5 per cent), Professional, scientific and technical services (up 2.5 per cent) and Health care and social assistance (up 5 per cent) – accounted for more than half of the net increase in business counts over the year.

• Businesses focusing on courier deliveries, road freight, computing system design, engineering services, health and social assistance have thrived. But drought and bushfires in late 2019/early 2020 hurt the agricultural, forestry and fishing industry with the number of businesses down 1 per cent over the year.

Published by Ryan Felsman, Senior Economist, CommSec