Two-speed job market
Labour force; Domestic airfares
Employment rose for the 12th straight month, up by 42,300 in May after a revised 43,100 increase in jobs in April (previously reported as a 28,400 increase in jobs). Full-time jobs rose by 2,400, but part-time jobs rose by 39,800. Economists had tipped an increase in total jobs of around 15,000.
Hours worked fell by 0.3 per cent in the month to be up 2.1 per cent over the year. In trend terms, hours worked rose 0.2 per cent to be up 2.5 per cent on the year.
The unemployment rate was steady at 5.2 per cent in seasonally adjusted terms (actually down from 5.22 per cent to 5.19 per cent). In trend terms the jobless rate was steady at 5.1 per cent.
Participation rate: The participation rate rose from 65.9 per cent to a record high of 66.0 per cent. In trend terms the participation rate rose from 65.8 per cent to a record high of 65.9 per cent.
Unemployment across states in May: NSW 4.6 per cent (April 4.6 per cent); Victoria 4.6 per cent (4.8 per cent); Queensland 6.2 per cent (5.9 per cent); South Australia 5.7 per cent (6.1 per cent); Western Australia 6.3 per cent (6.1 per cent); Tasmania 6.4 per cent (6.8 per cent). In trend terms, Northern Territory 4.5 per cent (4.5 per cent); ACT 3.9 per cent (3.8 per cent).
Domestic airfares: Airfares can be volatile on a month-to-month basis. But the smoothed measures show that business class airfares are falling at the fastest annual rate in six years with discount fares dropping at the fastest annual rate in three years in June.
A raft of companies is affected by the employment data but especially those dependent on consumer spending. Amongst stocks affected are Nine Entertainment, West Australian Newspapers, Seek Limited and McMillan Shakespeare.
What does it all mean?
• Last month we said that there was seemingly something for everyone in the latest labour force data. And the same conclusion can be made again. There was good job growth in the month, albeit focussed on part-time jobs. The jobless rate didn’t budge. But the proportion of working age Aussies in the job market (participation rate) hit record highs. Admittedly the data covered the election period and that may account for the skew to part-time workers. Clearly there are temporary jobs created each three years for election-related roles.
• A big question for the Reserve Bank is whether it believes that lower interest rates can truly drive the national jobless rate to 4.5 per cent or whether structural factors will impede progress. NSW, Victoria, the ACT and the Northern Territory have jobless rates of 4.6 per cent or lower but next best is South Australia at 5.7 per cent.
• So the ball is back in the Reserve Bank’s court. We know that interest rates are being driven by the job market. So does the Reserve Bank follow the June rate cut with another move in July or does it wait a little longer – perhaps August after the late July inflation data?
• We continue to favour August for the next rate cut. There certainly is no rush. The economy lost momentum late in 2018/early in 2009 due to the US-China trade stoush. Other countries have similarly experienced softer growth. Australia has also experienced slower growth in 2019 as both businesses and consumers awaited the election result. With a clear election result obtained, the economy should gain pace from here.
• The Reserve Bank doesn’t seem to see any barriers to further rate stimulus. ‘Full employment’ is now defined as a jobless rate near 4.5 per cent. And inflation is set to stay at lower levels for longer. That assumption was backed by today’s data showing plunging airfares in June.
• Certainly stimulus is coming from lower interest rates, the minimum wage decision, the upcoming tax cut and some loosening of home lending policy from the regulators. A lower Aussie dollar is also supporting activity in the economy. Sydney home prices have lifted 0.3 per cent from recent lows with Melbourne prices up 0.2 per cent.
What do the figures show?
• Employment rose for the 12th straight month, up by 42,300 in May after a revised 43,100 increase in jobs in April (previously reported as a 28,400 increase in jobs). Full-time jobs rose by 2,400, but part-time jobs rose by 39,800. Economists had tipped an increase in total jobs of around 15,000.
• Annual job growth rose from 2.5 per cent to a 14-month high of 2.9 per cent (decade average 1.7 per cent).
• Hours worked fell by 0.3 per cent in the month to be up 2.1 per cent over the year. In trend terms, hours worked rose 0.2 per cent to be up 2.5 per cent on the year.
• The unemployment rate was steady at 5.2 per cent in seasonally adjusted terms. In trend terms the jobless rate was steady at 5.1 per cent.
• The participation rate rose from 65.9 per cent to a record high of 66.0 per cent. In trend terms the participation rate rose from 65.8 per cent to a record high of 65.9 per cent.
• Unemployment across states in May: NSW 4.6 per cent (April 4.6 per cent); Victoria 4.6 per cent (4.8 per cent); Queensland 6.2 per cent (5.9 per cent); South Australia 5.7 per cent (6.1 per cent); Western Australia 6.3 per cent (6.1 per cent); Tasmania 6.4 per cent (6.8 per cent). In trend terms, Northern Territory 4.5 per cent (4.5 per cent); ACT 3.9 per cent (3.8 per cent).
• State/Territory jobs: In seasonally adjusted terms, the largest increase in employment was in New South Wales (up 38,500 persons), followed by Victoria (up 28,600 persons) and Queensland (up 7,800 persons). The only decreases were in Western Australia (down 4,000 persons) and Tasmania (down 400 persons).
• The working age population rose by 26,000 in May to 20.56 million. Over the year the working age population rose by 356,100 – a 9½-year high – or 1.76 per cent, but this is still down from the record 2.36 per cent annual growth in December 2008.
• The monthly trend underemployment rate increased 0.1pt to 8.5 per cent. The monthly trend underutilisation rate increased 0.1pt to 13.6 per cent.
• The monthly seasonally adjusted underemployment rate increased 0.1pt to 8.6 per cent. The monthly underutilisation rate remained steady at 13.7 per cent.
• Business class airfares fell by 0.2 per cent in June after falling by 1 per cent in May. Business class airfares are down 9.6 per cent on a year ago – falling at the fastest annual rate in six years. And the actual fares stand at the lowest level in four years. In smoothed terms, business class airfares fell by 1.3 per cent in June to be down 9.3 per cent on the year.
• Discount airfares are volatile month-to-month. In June, fares rose by 15.2 per cent after falling by 25.9 per cent in May. Discount airfares are down 5.9 per cent over the year to June. In smoothed terms, discount airfares fell by 1.9 per cent in June to be down 3.1 per cent on the year – the biggest fall in the annual growth rate in three years. Fares are the lowest in two years.
• Restricted economy airfares rose by 0.7 per cent in June after falling by 0.5 per cent in May. In smoothed terms, restricted economy fares rose just 0.2 per cent in June to be up by 5.3 per cent on the year.
Why is the data important?
• 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.
• If more people are employed, then there is greater spending power in the economy. But at the same time companies may adjust the work hours of employees. If employees work less hours, and therefore get paid less, then spending power in the economy is reduced.
• The Bureau of Infrastructure, Transport and Regional Economics (BITRE) releases data on domestic and international aviation each month. The data is useful in tracking consumer spending and airline performance as well as broader economic activity.
What are the implications?
• CommSec is pencilling in another rate cut for August.
• But we are looking for significant debate about whether there is value in cutting rates much further. The south-eastern corner of Australia is arguably at or near full-employment. But there is a huge gap to the other states. The Reserve Bank Governor has a super-important speech in a week’s time: “The Labour Market and Spare Capacity”. Aussies will be hanging on every word.
Published by Craig James, Chief Economist, CommSec