- Australian unemployment tumbled to just 5% in September, the lowest level since April 2012.
- Unemployment is now at the level where the RBA estimates that wage pressures will begin to accelerate.
- Despite the strong headline numbers, markets remain unconvinced about whether to believe it.
- The ABS is 95% confident the unemployment rate sat between 4.8% to 5.2% in September.
Australian unemployment tumbled to just 5% in September, the lowest level since April 2012.
The surprise result — lower than even the most optimistic individual forecast offered by economists — leaves unemployment at a level where the Reserve Bank of Australia (RBA) expects that wage and inflationary pressures begin to build, something it didn’t expect would occur until the end of 2020.
Total unemployment now sits at the lowest level since February 2013.
Full-time employment also surged by 20,300, leaving gains over the past year at 217,500. Hours worked also increased by a healthy 0.6% from August.
While true the decline in unemployment was largely driven by a steep decline in the number of working age Australians actively participating in the labour market, the headline numbers in the September report were stellar, pointing to the likelihood the RBA may begin to lift official interest rates sooner than many expect.
However, financial markets aren’t all that convinced with a very muted reaction seen in the immediate aftermath of the release.
Yes, the Aussie dollar and government bond yields are a bit higher, but not to the scale one would expect given the sharp decline in unemployment.
Seemingly, traders and investors aren’t overly convinced about the veracity of the seasonally adjusted figures in the September report.
This table from the Australian Bureau of Statistics (ABS) may help to explain why.
It shows the 95% statistical confidence levels of the seasonally adjusted figures in today’s report.
While unemployment fell by 0.3 percentage points to 5%, the ABS is only 95% confident that it fell somewhere between 0.1 percentage points and 0.5 percentage points from August, or between 4.8% to 5.2%.
The same can also be said for employment with the ABS 95% confident that it fell between a range of a decline of 54,800 to a gain of 66,000.
In extreme outlier terms, those movements could have been even larger.
While that’s not to say the seasonally adjusted figures presented today weren’t reflected on the ground, it does demonstrate the wide ranges that employment and unemployment can and do move from month to month.
Along with the possibility of statistical noise, Tom Kennedy, Economist at JP Morgan, says there are other reasons to be cautious about today’s report.
“There are also a couple of caveats to the September survey,” he said.
“First, it appears part of the drop in the unemployment rates owes to the survey’s rotation, with the unemployment rate of the outgoing group meaningfully higher than the broader sample, while the jobless rate of the incoming group was below the group mean at 4.4%.
“The second potential asterisk to today’s release is the ABS’ change to surveying underemployment on a monthly basis. While the unemployment question hasn’t changed, previous, seemingly innocuous changes to the survey’s questions have wreaked havoc with the response rates and introduced sample noise in the past.
“We cannot definitively say this is the case in the September release, though it is worth acknowledging that changes to the survey have historically introduced short-term volatility.”
The ABS jobs survey is derived from eight sample groups that are interviewed over an eight-month period. An incoming sample group enters the survey each month, replacing the group that has been in the survey for the longest period.
In September, not only did the incoming group have significantly lower unemployment levels than the group which it replaced, but also below the average seen in the other seven survey groups.
This, along with the start of monthly underemployment and underutilisation estimates offered by the ABS, may have influenced the September result.
However, while adding to the need for caution, Kennedy says it would be wrong to totally dismiss the strength in the report.
“This result should not be dismissed and should this outcome be ‘locked-in’ in coming months then the market would have to acknowledge that progress toward the RBA’s objectives, which has been very slow for many years, now appears more rapid,” he says.
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