Australian employment grew for a seventh consecutive month in April, recording another hefty increase in the process.
Jobs surged by 37,400 in seasonally adjusted terms, smashing expectations for an increase of 5,000.
With employment growing faster than expected, the unemployment rate tumbled 0.2% to 5.7%, leaving it at a four-month low.
The March result, previously reported as a gain of 60,900, was revised fractionally lower to an increase of 60,000.
Taking some of the gloss off the headline result, the ABS reported that monthly hours worked fell by 4.3 million hours to 1.6595 billion hours in seasonally adjusted terms. The decline was driven by a drop in full-time hours worked of 0.5%, partially offset by a lift in part-time hours of 0.7%.
This, despite the recent recovery in hiring, will raise questions over the level of slack that exists within the labour market at present.
Of course the question is can Australia sustain the job addition momentum and will the level of slack recede>
We start with JPMorgan.
Ben Jarman, JPMorgan
With today’s snap-back, the unemployment rate is now in line with our quarter-end forecast for 2Q, and for year-end, so we don’t expect any further improvement from here.
Today’s result similarly does not change the likelihood of very weak household income and wage performance over the medium term, which underpin the outlook for inflation. For the RBA, a 5.7% unemployment rate is still too high, and is unchanged over the last year.
The composition of the labour data is also poor, so while the staff estimate NAIRU (non-accelerating inflation rate of unemployment) in the low 5s, that may still be too high, given the underemployment issue and the fact that wage growth has been consistently weaker than the level of the unemployment rate would normally suggest.
We are also wary of the significant tests that lie ahead for the labour market, given that housing is so late-cycle. Unemployment is currently very low in New South Wales for example, which has heavy exposure to the financial/housing dynamics. Still, today’s result does provide some breathing space relative to the RBA staff’s 5-6% forecast band for unemployment. The lack of an acute unemployment shock in the near term supports the Board’s clear preference for a gradual return of inflation to target, though we still view the bias as being to lower rates over time, given festering weakness in wages and inflation.
David Plank, ANZ
Employment was up strongly in April, following on from the very strong result for March. The full-time/part-time split was somewhat less positive. The drop in the unemployment rate to 5.7% confirms the overall strength of the report in our view. We think we are likely to see a series of strong employment reports over coming months as the official data closes the gap that had opened up with the strong labour market signals coming from other data. This may act to stem the decline in consumer confidence that has been apparent since the start of the year.
Given the strength of labour market indicators from sources such as business confidence and ANZ Job Ads we are not overly surprised by the strength of the April jobs report, even if it was above our forecast. We think this could continue for a while yet, hopefully stemming the trend decline in consumer confidence seen since the start of the year.
Su-Lin Ong, RBC Capital
A decent labour force survey for April, with the strengthening employment trend likely to please the RBA. Continued weakness in hours worked, however, bears watching as it tries to assess how much spare capacity is in the labour market. Coupled with mixed activity data, the labour market dynamics sit with a central bank on hold for some time.
The April outcome confirmed a pick-up in the pace of employment generation that has been under way since late last year. The average monthly pace of job creation has stepped up over the last six months. Of note, this has been mostly driven by full-time jobs (~60%) in contrast to the prior six months with a much weaker pace of monthly job creation and a contraction in full-time employment during this period. The recent pace of job creation is enough to put some downward pressure on the unemployment rate and begin to absorb some excess capacity. The only worrying aspect is the weak trend in hours worked, which appears consistent with the still elevated levels of underemployment. This remains important in terms of capacity considerations and also consistent with the continued weak pace of wages growth.
The firmer state of the labour market likely reflects the stronger patch of growth in Q4 2016 and early this year amid a firmer global backdrop and increased optimism. For the RBA, today’s data will be welcomed and may give it a little more confidence in its expectation for a return to above-trend growth. We are less confident that growth will be maintained at the pace of late 2016, especially as the housing construction cycle peaks later this year, consumers remain cautious, and non mining investment stays modest.
While the May minutes also suggested that the RBA was less concerned about the full-time/part-time composition of employment generation (see our note from earlier this week), we doubt that the hours worked data will have escaped its attention as it grapples with trying to assess the degree of spare capacity in the labour market. This remains key given the stagnant pace of wages growth and implications for already sub-target inflation.
Gareth Aird, CBA
Once again the ABS has published an employment report that has left us scratching our heads. To put these numbers in perspective, it’s the equivalent of a 1.2 million increase in US non farm payrolls over two months! To further add to our concerns over the data, total hours worked is reported to have fallen by 0.3% in April and is down by 0.1% over the past two months despite employment having risen by 97,400.
The April RBA Board Minutes, published on Tuesday, contained a detailed discussion on recent trends in the labour market. In particular, a few paragraphs were devoted to the Board’s assessment of the composition of employment growth. Members concluded that, “the distinction between full time and part time work had become less important in assessing labour market conditions.” We beg to differ. And as luck would have it, we published a detailed research piece back in August, which explains why.
It is true that the distinction between full time and part time employment is arbitrary and the line in the sand is drawn at 35hrs. But it is no coincidence that the upward trend in underemployment over the past few years has coincided with an acceleration in the trend towards part time employment.
There is often a perception that full time jobs are “good” and part time “ok” when it comes to the employment data. But in our view, both full time and part time jobs are equally as “good”, provided that workers in part time employment don’t want to work full time. If a worker chooses part time employment they are not underutilised – they are simply displaying a preference to work fewer than 35 hours a week. However, growth in part time employment, rather than full time work, becomes a problem (and indeed undesirable) when there is growth in the number of workers who are not working as much as they would like. This is captured in the underemployment rate which is at its highest level on record.
The monetary policy dial is unaltered by today’s numbers. The cash rate remains on hold unless the labour market falters or there is a material slowing of activity in the housing market
Shane Oliver, AMP Capital
The strength in jobs growth is to be welcomed and suggests that jobs growth is heading back towards the solid pace indicated by forward looking jobs indicators (like job ads, vacancies and hiring intentions from the NAB survey). As combined in our Jobs Leading Indicator these forward looking indicators continue to point to strong jobs growth ahead (although it has been overstating jobs growth a lot lately).
April’s jobs data is consistent with Reserve Bank expectations and so on its own is consistent with interest rates remaining on hold. The risk though is that weakness in retail sales (on the back of subdued consumer confidence and weak wages growth) and weaker growth in housing construction will start to impact employment growth down the track. Fortunately, forward looking jobs indicators are continuing to hold up at present suggesting reasonable jobs growth ahead.
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