Here's why Australian unemployment may be about to increase

Alexander Hassenstein/Getty ImagesRotation effects.
  • Australia’s January jobs report will be released today.
  • Employment is tipped to lift by 15,000 leaving unemployment steady at 5%.
  • Statistical quirks in the ABS survey could see unemployment lift unexpectedly.

Australia’s January jobs report will be released today.

Markets expect employment to lift by 15,000. With participation forecast to remain at 65.6%, that’s expected to see unemployment hold at 5%, the lowest level since the middle of 2011.

However, risks to unemployment rate could be to the upside.

The ABS explains:

In looking ahead to the January 2019 estimates, the outgoing rotation group in December 2018, which will be replaced by a new incoming rotation group in January 2019, has a higher employment to population ratio — 63.6% — than the sample as a whole of 63% in original terms.

The unemployment rate for the outgoing rotation group in December 2018 is lower than the whole sample, 4.1% compared to 4.8%.

The ABS labour force report comprises eight groups that rotate in and out of the survey. Once a group enters the survey they stay there for eight months before being replaced by a new group.

The outgoing group in the December survey had a much higher employment level and far lower unemployment rate than the average of the other seven groups.

While the characteristics of the incoming group are not yet known, if they do not exhibit lower levels of unemployment like the group being replaced, that could see the unemployment rate tick higher in January.

“Rotation effects point towards a softer headline number in January,” says the Commonwealth Bank’s economics team in relation to employment growth.

Economists at the National Australia Bank (NAB) agree that headline employment growth could be soft. Coupled with the low unemployment level of the outgoing survey group, it says that risks for the unemployment rate appear to be to the upside.

“For January, the forecast for soft employment growth suggests a reasonable risk that the unemployment rate will tick up,” it says.

“The outgoing rotation group, which makes up one-eighth of the sample, has an unemployment rate 0.7 percentage points lower than the rest of the sample.

“A close to average new sample could push the unemployment rate. We expect a print that still rounds to 5%, with risk of a 5.1% rate.”

The RBA believes the unemployment rate still remains the best single indicator on labour market conditions. It has also stated that future movements in the unemployment rate will be influential on the future direction for Australia’s cash rate.

The January jobs report will be released at 11.30am AEDT>

NOW READ: Your 10-second guide to today’s Australian jobs report

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