Independent Australian and global macro analysis

Wednesday, May 15, 2019

Australia's unemployment rate rises to 5.2%; employment growth strengthens

Australia's labour force report for April contained both positives and negatives. While momentum in terms of employment growth remains robust, unemployment and broader measures of excess capacity drifted up.  

Labour Force Survey — April | By the numbers
  • Employment increased by a net 28,400 in seasonally adjusted terms; a vast outperformance relative to the 15,000 increase forecast by markets. March's initially reported gain of 25,700 was upwardly revised to 27,700.  
  • The nation's headline unemployment rate increased to 5.2% from an upwardly revised 5.1% in March (from 5.0%), with the market forecasting a 5.0% outcome.
  • The underutilisation rate deteriorated by 0.4ppt after allowing for revisions to 13.7%, and the underemployment rate increased by 0.3ppt to 8.5%. 
  • The participation rate lifted by 0.1ppt to a record-high 65.8% (exp: 65.7%).
  • Aggregate hours worked increased by 0.1% in the month (prior rev +0.8%) to 1.79bn hours, with annual growth easing back to 1.9% from 3.0%.

Labour Force Survey — April | The details 

To the underlying metrics, the national unemployment rate lifted from 5.07% to 5.20% to mark a 0.26ppt deterioration since reaching its low (4.94%) in February. However, participation increased by 0.1ppt in April to 65.8% after also rising by that amount in March. In absolute terms, the labour force increased by a robust 49,600 in April to outpace the net gain in employment of 28,400. As a result, the unemployed total increased by 21,200. The trend series data from the chart, immediately above, suggests that unemployment is beginning to drift up as participation remains in a firm uptrend. 

That means that the pace of employment growth is all important to absorb new entrants into the workforce, and the trend here is positive. Total employment growth on an annual basis lifted from 2.44% in the previous month to 2.58% in April and has strengthened from around 2.2% since the turn of the year. Annual full-time employment growth eased from 3.41% to 2.9% but is still robust (absolute change was -6,300) while the part-time pace increased from 0.38% to 1.89% (+34,700). *Click on charts to expand 

From the other perspective, pessimists can point to another deterioration in underemployment (counting those employed but wanting more hours) from 8.2% to 8.5%, having increased from 8.3% at the end of 2018, while underutilisation (unemployed + underemployed) lifted from 13.3% to 13.7% after ending 2018 at 13.3%. 

Aggregate hours worked increased by 0.1% in April to 1.79bn hours as annual growth slowed to 1.9% from 3.0%. Adjusting for the rise in employment, average hours worked per employee eased by 0.1% in the month to 139.5 hours to be -0.7% through the year. Caution is warranted in interpreting this result given the impact of public holidays from Easter and ANZAC Day during the month.

In a broad sense, the state data reflected the national result with employment growth looking to have remained solid amid a rise in unemployment. There was a deterioration in unemployment in New South Wales (from 4.3% to 4.5%) and Victoria (from 4.6% to 4.9%). There were also increases in South Australia (from 5.9% to 6.1%), Western Australia (from 6.0% to 6.1%) and Tasmania (from 6.7% to 6.8%). Queensland's unemployment rate, though, declined from 6.1% to 5.9%. 

Labour Force Survey — April | Insights

There were both positives and negatives in today's report. On the plus side, momentum in terms of employment growth is robust and has actually strengthened over 2019. Likewise, the ongoing rise in participation can be seen as favourable in terms of signaling confidence in the labour market. On the other hand, even with robust employment growth, there has been a rise in unemployment and in the broader measures of excess capacity (as per the chart, below). The forward-looking indicators are also pointing to softer employment growth, though that may not be evident in this series for a few months yet. That puts the RBA on track for a rate cut as per their recent guidance, which is likely to come by August.