While Australia’s seasonally adjusted jobs data is volatile at the best of times, it’s clear that labour market conditions improved markedly in 2015.
Unemployment has been falling steadily, thanks largely to a strong hiring spree in the second half of last year outpacing growth in the size of Australia’s labour force.
To many, including the RBA, the result exceeded expectations by some margin.
Despite a surprise fall in the national unemployment rate in February to 5.81%, recent labour market indicators have been less than stellar. Job ads have been falling. Employment growth has stalled. Now, mirroring the weakness in Westpac’s unemployment expectations index, job loss expectations have surged, casting further doubt over the sustainability of recent labour market gains.
The chart below, supplied by Justin Fabo, senior economist at the ANZ, tracks movements in Australia’s unemployment rate compared to job loss expectations due to business shutdown or downsizing.
There is a clear relationship between the two, with movements in job loss expectations tending to lead movements in the unemployment rate.
According to Fabo, while the recent spike job loss expectations likely reflects some statistical volatility, it “may flag that further near-term inroads into the unemployment rate will have to be hard won”.
Fabo notes that lift was driven by workers who have been with their current employer for more than 12 months, particularly among males.
“Job loss expectations among men with job tenure of at least a year remain well above those of women,” notes Fabo. “This may reflect impending job losses in the car manufacturing and related industries and further labour shedding as the construction of LNG projects approaches completion.”
The chart below measures job loss expectations for men and women who have been at the same employer for at least 12 months, comparing the results for workers who have been in their role for less than a year.
Though Fabo suggests the spike is not representative of broader labour market developments, it signals that the conditions may not be as tight as the current unemployment rate would suggest, something that will have ramifications for wages growth and also household consumption should it be proven correct.
At a time when household spending is be required to help offset the economic drag from the mining investment boom, this will be worthwhile watching in the months ahead.