Australia: Cyclical and structural employment trends – RBC CM

Research Team at RBC Capital Markets, suggests that Australia’s detailed industry employment is released every quarter, and the latest August quarter confirms a number of structural and cyclical trends.

Key Quotes

“We note that the data can be volatile, consistent with the underlying monthly labour force survey, but nevertheless they can provide some interesting insights.

A number of structural trends remain mostly intact. Job creation continues to be dominated by services—health, professional services, and admin & support services. These sectors continue to consistently add to jobs almost regardless of the cycle. The exception appears to be in manufacturing, with a couple of quarters of positive prints recently. We find this difficult to explain given the generally firmer currency over the last 12 months and clear multi-decade downward trend and put this down to some noise in the data.

On the cyclical side, mining continues to shed labour, construction employment remains a strong and consistent performer underpinned by the robust residential construction upswing, and job creation in the accommodation & food services sector has generated the most jobs thus far in 2016 on a trend basis (just over 40k). No doubt, the stepup in tourism is part of this story. Of note, we highlight the considerable loss of jobs in the retail sector recently. We have long held below-consensus forecasts for household consumption, noting a number of headwinds including tepid wages growth, high levels of household debt, and a labour market with a softer underbelly than the headline unemployment rate would suggest. As a key employer (~10% of total employment), this trend bears watching.

The industry data provide some explanation for the current historically weak pace of wages growth. Continued shedding of high-paying mining jobs, with job creation dominated in part-time, lower-paid accommodation and food retailing, as well as health, is likely to be a contributing factor. We note, however, that it is not the only explanation amid a generally weak global wage backdrop and laundry list of reasons (tech change, reduced bargaining power, increased mobility, etc.), as well as a sticky A$ which is keeping some downward pressure on AU’s internal costs (wages) to ensure greater competitiveness. This hints at a softer wages picture persisting even assuming an unemployment rate that moves modestly lower over time.”