Australia’s February jobs report will be released later today.
Of all Australian economic indicators, it’s now arguably the most important when it comes to the outlook for official interest settings from the Reserve Bank of Australia (RBA).
With so many parts of the domestic economy now weakening, the bank needs strong hiring to keep downward pressure on unemployment. Should that not continue, it will only add to doubts about the RBA’s forecasts for stronger economic growth and faster inflation in the years ahead.
The jobs market is essentially the linchpin for what will happen in the economy next.
Markets are certainly doubtful about the RBA’s forecasts. They already have one full 25 basis point rate cut from the RBA priced in by the end of the year, with a second cut seen as an even money bet. Many market economists also see the RBA delivering 50 basis points of rate cuts this year.
Given that so much pessimism is already built in, today’s report carries the potential to shift cash rate expectations even further, particularly should it come in ahead of expectations.
Here’s the state of play.
- In January, employment by jumped by 39,100, breezing past forecasts for a smaller increase of 15,000.
- Full-time hiring increased by a mammoth 65,400, more than offsetting a 26,300 fall in part-time employment.
- Despite the jobs surge, the unemployment rate held steady at a seven-year low of 5%.
- The steady unemployment rate reflected that the labour force participation rate rose by 0.1 percentage points to 65.7%.
- In numeric terms, the size of Australia’s labour force rose by 45,700, faster than the 39,100 increase in employment. That saw the total number of unemployed workers increase by 6,600 to 673,500.
- While the unemployment rate held steady, broader measures of labour market slack declined.
- The underemployment rate dipped 0.2 percentage points to 8.1%, leaving it at the lowest level since June 2014. Combined with unemployed workers, the labour force underutilisation rate also fell to 13.2%, down from 13.3% in December.
- The underutilisation rate has a far stronger inverse relationship to wage growth than Australia’s unemployment rate in the post-GFC era.
- Today, markets expect a modest increase in employment of 15,000, according to the median economist forecast. Individual forecasts range from a decline of 5,000 to an increase of 30,000. Westpac Bank is the most pessimistic forecaster. This post explains why.
- With labour force participation tipped to hold at 65.7%, the expected lift in hiring should see the unemployment rate hold steady at 5%.
- While another increase in employment is expected, the vast majority of leading labour market indicators have weakened noticeably since the last jobs report. See here, here, here, and here.
- The RBA said earlier this month that developments in the labour market are “particularly important” when it comes to the future direction for official interest rates.
- In early February, RBA Governor Philip Lowe said a sustained increase in Australia’s unemployment rate was one scenario that could warrant a further reduction in Australia’s cash rate.
- While that means the unemployment rate will get plenty of attention, even beyond what is usually the case, given the importance of wage growth at present to the RBA’s forecasts, the underutilisation rate will also be closely watched, as will growth in hours worked.
The jobs report will arrive at 11.30am AEDT.
Business Insider will have all the details once it is released.
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