Australia’s February jobs report had something for everyone.
Unemployment fell to 5.8%, down from 6.0%, although the decline was partially caused by a fall in estimated labour force participation.
On the other hand, despite the drop in the unemployment rate, employment growth continued to disappoint, with the number of additional people in work rising by just 300, employment is still down by 6,600 over the past three months in seasonally adjusted terms.
The drop in the unemployment rate saw markets take the result as strong. Now that economists have had time to digest the report, it’s time to see what they’ve made of it.
John Peters, CBA
Today’s jobs data helps confirm that Australia’s economic growth transition from the mining to the non-mining sectors of the economy (and particularly the services sector) is pretty much on track. The RBA would find it difficult to cut rates against the backdrop of continued strength in the jobs data and a falling unemployment rate.
The central bank has also noted that the economic transition has some way to go and further mining related job losses are likely over coming years, but the flexibility shown by the labour market to date bodes well for the economic and jobs transition. Two decade low wages growth is also helping this transition. The latest wage cost index showed broad based wages growth of 2.2% pa.
In our view, unless there is a serious deterioration in the local growth outlook generally and particularly the labour market, and/or a meltdown in the global growth outlook (say a tanking in Chinese growth), then the RBA will be content to leave the cash rate at 2% over 2016. Markets think otherwise although they have trimmed the quantum of easing in 2016 from 0.5% just a few weeks ago to 0.25% currently.
Dylan Eades and Jo Masters, ANZ
The stalling in employment growth likely reflects some payback following the exceptional strength recorded towards the end of 2015. Nonetheless, measured employment growth still averaged a solid 19k in the six months to February.
The RBA continues to link monetary policy to the improvement in labour market conditions. At this stage, the trend improvement in the unemployment rate will be sufficient to keep the RBA on the sidelines for the time being and today’s data puts at risk our call for a May rate cut.
The RBA’s most recent communications suggests that it remains confident that employment growth will remain relatively healthy in the near term, but is less certain about further declines in the unemployment rate. The path for monetary policy outlook will depend heavily on whether further inroads in to unemployment can be made.
Tapas Strickland, NAB
Today’s employment report was positive, with the unemployment rate falling to 5.8%, from 6.0%. The unemployment rate over the past year has fallen by 0.5% points and is hugging the RBA’s February forecast track.
It is clear the labour market has improved in trend terms over the past year with the unemployment rate a full 0.5% points lower, while annual employment growth remains strong at 2.3% or equivalent to around 19,000 jobs a month. NAB’s employment index suggests such strength should continue over coming months and is suggestive of employment growth in the 15-17,000 range.
For the RBA, they are likely to interpret the jobs figures positively. The unemployment rate is around the level where they had forecast at the February Statement of Monetary Policy and is consistent with the improvement in the non-mining economy seen in the GDP figures recently. The RBA has explicitly linked the case for further easing to the employment data and today’s data should reassure the RBA that the improvement in the non-mining economy has continued into 2016. We suggest positive employment growth in excess of 14,000 per month (needed to keep the unemployment rate from rising) should alleviate any renewed pressure on the RBA to ease.
NAB sees the RBA on hold in 2016.
Paul Bloxham, HSBC
Today’s jobs numbers were weaker than expected, with broadly flat jobs in February. However, at the same time, the unemployment rate outperformed by falling to 5.8%, due to an unexpected sharp decline in the participation rate.
Measurement issues have pervaded this survey making it difficult to get a clear reading. This is the third consecutive month of weak jobs growth, but this partly reflects pay-back for very strong numbers late last year. Cutting through the noise, the trend measures show the unemployment rate is still below its peak, suggesting gradual labour market improvement.
However, unemployment is still well above its full employment level, which is likely to continue to weigh on wages growth and domestic inflation, leaving the RBA with scope to cut further.