Australia’s January jobs report had something for both the bulls and bears.
For the more optimistic, the unemployment rate fell and employment increased again, rising for a fourth consecutive month. However, for the pessimists, the rise in employment masked another huge drop in full-time jobs with the unemployment only falling due to a decline in labour market participation.
It’s the latter that markets, as a whole, have leaned towards having had time to digest the report, with the Australian dollar and ASX 200 both falling from earlier highs while Australian government bond futures have risen off their lows.
The split in employment growth seems to have unearthed concerns over the degree of labour market slack with the Australian economy, particularly as the trend appeared to have been improving in late 2016.
However, if you’re concerned with the split between full and part-time employment growth seen in January, Tapas Strickland, an economist at the National Australia Bank has a message for you.
“Much will be made of the full/part-time employment split in this release,” he wrote following the release of today’s report.
“However, large movements tend to reverse in the following month, and the split itself is not entirely meaningful given the shedding of full-time jobs in the mining and manufacturing regions, whilst the rise of part-time employment is a global phenomenon.”
So, in his opinion, the seasonally adjusted figures from the ABS — notoriously wild in recent years — have a tendency to reverse the next month after large monthly move.
That was seen on plenty occasions in 2016, with a sharp move one month often replaced by an opposite move then next.
And while the shift from full-time to part-time employment has been pronounced, it’s been seen in other developed economies, and also reflects economic conditions around the country right now.
Strickland says that if there is a worry to come from the January report, it’s not the breakdown between full and part-time employment, but the weakness that has continued in Australia’s largest labour markets — New South Wales and Victoria.
“Worryingly, trend employment growth in the non-mining states still shows signs of softness. Much of that is still occurring in New South Wales where there has been no net jobs growth in the ABS data since early 2016.
This chart from the NAB breaks down trend employment growth by Australia’s non-mining and mining states and territories, along with those that are a mixture of both.
The red bars are employment growth in Australia’s non-mining states and territories, and, as Strickland alludes to, after a period of strong hiring, trend employment growth in these regions has slowed noticeably, largely as a result of weakness in New South Wales.
While there has been some offset of this slowing by other states and territories, the deceleration is slightly concerning given these are the largest economies in Australia, particularly as they will be tasked with helping to bolster economic growth in the coming years as the effects of higher commodity exports and Australia’s residential building boom start to wane.
It’s something that should be watched closely in the months ahead, as such.
However, Strickland isn’t overly fussed at the slowdown just yet, pointing out that several lead employment indicators have strengthened recently.
“There is some hope for a turnaround with a recent pick-up in the leading indicators of employment,” he says.
“The NAB business survey’s employment index is also suggestive of stronger employment prints of around 21,000 a month, whilst SEEK job ads were also stronger.”
So while the January jobs report was slightly disappointing, there’s no need to get overly pessimistic as yet.
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