As it stands | Labour Force Survey
In January, employment increased by a net 39,100 in seasonally-adjusted terms, which far exceeded the market forecast for a 15,000 rise. This was the 4th consecutive month where the employment outcome had printed above the consensus figure. The underlying detail was volatile, with full-time rising by 65,400 and part-time falling by 26,300.
The national unemployment rate remained at 5.0%, as the participation rate ticked up to 65.7% to sit a fraction below its record high. The highlight of the release was that the key measures of excess capacity declined; underemployment rate (workers who want more hours) -0.2ppt to 8.1% and the underutilisation rate (underemployed and unemployed) -0.1ppt to 13.1%.
Today, the median market forecast compiled by Bloomberg Australia looks again for employment to rise by 15,000 in the month, with a range from -5,000 to +30,000. Based on that outcome, the unemployment rate is expected to remain at 5.0% and the participation rate to hold at 65.7%.
It will be interesting to observe how the markets respond to any miss on expectations today. While January's survey was strong on the surface, it appeared markets were skeptical having since strengthened their expectations and brought forward the timing for RBA easing. This likely reflects a markedly slower growth outlook for the domestic economy. However, that view is complicated by the fact that the labour market remained resilient despite a notable deterioration in the domestic economy over the second half of 2018. This 'tension' gained focus in the RBA's March meeting minutes and is similar to the current experiences of other advanced economies.
There are also technical factors to take into consideration, namely due to volatility in the data prompted by the seasonal impact of the peak holiday period around December and January. Using history as a guide, we can see from the chart (below) that employment outcomes in February can often differ significantly from the previous month. The strength in January's survey potentially points to downside risk to today's report, noting also there could some impact induced by 'sample rotation' with the outgoing group having stronger employment characteristics than the remaining groups in the sample.
Given these uncertainties, it will likely take a succession of soft labour market reports to unsettle the RBA, particularly when considering the recent momentum in the labour market. As highlighted in the chart, below, as of January, employment growth on a 3-month annualised basis was tracking at around 3% and by around 2.8% on a 6-month annualised basis. That compares with a still solid pace of 2.2% in year-on-year terms. Notwithstanding, there are near-term risks around the employment outlook from softening leads in forward-looking labour market indicators, weakening signals from activity and consumer surveys and uncertainty around the federal election, though that could take some time to be reflected in the data.
