What to expect: Labour Force Survey (January)

Australia's labour market performed solidly in 2018, with a notably strong finish to the year over Q4. Analysts and markets will be looking to today's release from the ABS at 11:30AM AEDT (21/2) to see if that momentum was maintained into the new year. Recently, the Reserve Bank of Australia (RBA) lowered its forecasts for GDP growth over the next couple of years, due to slower growth in household consumption referencing some negative wealth impact from declining property prices and an expected downturn in residential construction activity. Ongoing strength in labour market conditions will be key to keeping the domestic economy on track through these headwinds, though forward-looking indicators point to a likely moderation this year.  

As it stands | Labour Force Survey 

On a seasonally-adjusted basis, employment increased by 21,600 in December, which exceeded the market forecast for a gain of 18,000. However, the detail was patchy with part-time rising by 24,600 and full-time declining by 3,000. The unemployment rate fell by 0.1ppt to 5.0%, which was an upside surprise to the market forecast for no change from 5.1%. Measures of excess capacity also tightened; underutilisation rate -0.2ppt to 13.3% and the underemployment rate -0.1ppt to 8.4%. This was against an easing in the participation rate by 0.1ppt to 65.6%. 

Market expectations | Labour Force Survey 

Today, the median market forecast according to Bloomberg is for employment to rise by 15,000, around a range from +5,000 to +27,000. The nation's unemployment rate is expected to hold at 5.0% (range 4.9% to 5.1%), based on the participation rate remaining at 65.6% (range 65.6% to 65.8%).

The expected outcome of +15,000 in employment is marginally lower than in recent months, which reflects a moderation in employment expectations from the NAB's Business Survey, and slowing momentum in other forward-looking indicators analysed by markets. The pace of employment growth also slowed across 2018.  

What to look for | Labour Force Survey

Given the recent trend of stronger-than-expected employment outcomes, it will be important to see if this continued into the start of 2019. Markets are typically sensitive to any change in the unemployment rate, though it is also important to monitor the broader measures of underemployment and underutilisation. 

Keep a close watch on the pace of employment growth. A further moderation is widely expected this year, including from the RBA, given the signals from the forward-looking indicators, while also noting that it was running at a very strong level averaging around 3%Y/Y through the first half of 2018. The upcoming federal election could also create some additional uncertainty. 

In its communications and analysis, the RBA often focuses on the pace of employment growth relative to growth in the working-age population. Despite slowing, employment growth is still robust at 2.1%Y/Y and above the pace of growth in the working-age population at around 1.6%Y/Y. That situation is key to the unemployment rate outlook.