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Labour force

• Employment fell for the first time in 17 months, dropping by 19,000 jobs in October after lifting by 12,500 in September (previously estimated at +14,700). Full-time jobs fell by 10,300 with part-time jobs down by 8,700. Economists had tipped an increase in total jobs of around 15,000. The Aussie dollar fell from US68.35 cents to US 68.05 cents after the release of the data.

• Hours worked fell by 0.2 per cent in October to be up 1.4 per cent over the year. In trend terms, hours worked were up 1.7 per cent on the year.

• The unemployment rate rose from 5.2 per cent in September in seasonally adjusted terms to 5.3 per cent in October. The jobless rate was steady at 5.3 per cent in trend terms.

• Participation rate: The participation rate eased from 66.1 per cent in September to 66.0 per cent in October in seasonally adjusted terms. In trend terms the participation rate was steady at 66.1 per cent.

• Unemployment across states in October: NSW 4.8 per cent (September 4.5 per cent); Victoria 4.8 per cent (4.7 per cent); Queensland 6.5 per cent (6.5 per cent); South Australia 6.2 per cent (6.3 per cent); Western Australia 5.7 per cent (5.7 per cent); Tasmania 5.9 per cent (6.2 per cent). In trend terms, Northern Territory 5.9 per cent (5.7 per cent); ACT 3.3 per cent (3.3 per cent).

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

What does it all mean?

• Well it had to happen eventually. Jobs had lifted for 16 straight months and leading indicators like job advertisements had been signalling softer conditions for a number of months. But, as is often the case, it is important to note that indicators like employment and unemployment are ‘lagging’ indicators – they reflect business decisions made 5-6 months ago. Clearly, around the time of the election, businesses were cautious about taking on new staff. The lack of new jobs coming on, combined with some workers losing their positions have combined to produce today’s drop in job numbers.

• Looking ahead, three rate cuts have been working to lift activity, especially in the housing market. Sydney and Melbourne home prices are up 7 per cent since the election. Tax cuts are flowing through the economy. An abundance of infrastructure projects are underway across the country. And the lower Aussie dollar has resulted in an export bonanza with the annual trade surplus at record highs. So employment opportunities are more likely to grow from here. In fact, the odds favour a super-sized lift in jobs in November following the surprise drop in jobs in October.

• The weakness in the October job numbers was driven by NSW and Queensland. But it’s important to note that the Tasmanian jobless rate is the lowest in almost 12 months. The ACT jobless rate is equal to the lowest rate recorded in over a decade. And Western Australian jobs continue to rise, up 6,300 in October.

• We don’t expect the Reserve Bank to respond with a knee-jerk rate cut in December. But clearly the leaning remains to lower rates in coming months. We have pencilled in a quarter percent rate cut in February. Today’s surprise fall in jobs may also weaken the resolve of the Federal Government to leave fiscal policy settings unchanged. The Mid Year Economic and Fiscal Outlook report is due in early December. State governments may also hasten start up phases of new projects. Policy works far better if monetary and fiscal policy are moving in the same direction.

What do the figures show?

Labour force – October

• Employment fell for the first time in 17 months, dropping by 19,000 jobs in October after lifting by 12,500 in September (previously estimated at +14,700). Full-time jobs fell by 10,300 with part-time jobs down by 8,700. Economists had tipped an increase in total jobs of around 15,000.

• Hours worked fell by 0.2 per cent in October to be up 1.4 per cent over the year. In trend terms, hours worked were up 1.7 per cent on the year.

• The unemployment rate rose from 5.2 per cent in September in seasonally adjusted terms to 5.3 per cent in October. The jobless rate was steady at 5.3 per cent in trend terms.

• The participation rate eased from 66.1 per cent in September to 66.0 per cent in October in seasonally adjusted terms. In trend terms the participation rate was steady at 66.1 per cent.

• Unemployment across states in October: NSW 4.8 per cent (September 4.5 per cent); Victoria 4.8 per cent (4.7 per cent); Queensland 6.5 per cent (6.5 per cent); South Australia 6.2 per cent (6.3 per cent); Western Australia 5.7 per cent (5.7 per cent); Tasmania 5.9 per cent (6.2 per cent). In trend terms, Northern Territory 5.9 per cent (5.7 per cent); ACT 3.3 per cent (3.3 per cent).

• State/Territory jobs: In seasonally adjusted terms, from September 2019 to October 2019, the largest decreases in employment were recorded in Queensland (down by 14,100 people) and New South Wales (down by 10,300 people). The largest increase was in Western Australia (up by 6,300 people).

• The working age population rose by 23,500 in October to 20.68 million. Over the year, the working age population rose by 336,300 or 1.65 per cent. But this is still down from the record 2.36 per cent annual growth in December 2008.

• In trend terms, the monthly underemployment rate remained steady at 8.5 per cent. The monthly underutilisation rate remained steady at 13.8 per cent.

• In seasonally adjusted terms, the monthly underemployment rate increased by 0.2 points to 8.5 per cent. The monthly underutilisation rate increased by 0.3 points to 13.8 per cent.

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 interest rates and investors?

• Australia has a two-speed job market. The ACT, NSW, Victoria all have jobless rates below 5 per cent. And job ad growth in the ACT is up by 5.7 per cent over the year to October – according to SEEK – pointing to further job gains in the nation’s capital. And ‘boom’ economy Victoria has added 35,100 jobs over the past four months.

• But other states and territories have jobless rates above the national result. The distinction should be addressed by policymakers – particularly for the resources-focused states. In particular, the Northern Territory’s unemployment rate of 5.9 per cent is the highest in 13½ years.

• While the jobs data is considered to be a ‘lagging’ indicator of economic activity, the October figures continue to highlight, however, that the national unemployment rate needs to be closer to 4 per cent and the underutilisation rate nearer 12 per cent in order to reduce slack in the labour market.

• CommBank Group economists have pencilled in an interest rate cut in February 2020.

Published by Ryan Felsman, Senior Economist, CommSec