Australia: Statistical pull back likely in employment, with a bump up in unemployment - Westpac

Justin Smirk, Research Analyst at Westpac, suggests that a statistical pull back in April is on the cards for Australian employment numbers, with a bump up in unemployment, but a more positive underlying trend remains in place.

Key Quotes

“April should bring a correction to the March surge but we expect the labour market to improve as we move through Q2 and Q3.”

“In March employment surged 60.9k compared to the market’s forecast of +20k. In the month unemployment was flat at 5.9% with a 0.2ppt jump in participation rate to 64.8 resulting in 64.9k boost to the labour force.”

“There was a promising sign in the 74.5k surge in full-time employment and 0.2% gain in hours worked. So while we are expecting employment to pick-up as we move through Q2 and Q3, it is too early to be confident that a more positive labour market has emerged. The annual rate for both is still just 0.8yr%.”

“Normally, a strong rise in both employment and participation points to sample roll being behind a strong number. However, in original terms the incoming group had a lower employment to population ratio than the group it replaced so it does not appear that sample rotation was behind the better than expected outcome.”

“We did, however, notice a recent change in seasonality; March was a positive month until two years ago with the seasonal factor now boosting, rather than constraining the headline print.”

“The March rise in full-time employment was a positive sign and which may represent a break from the recent focus on part-time employment. In the three months to March, full-time employment gained an average of 18.6k per month while part-time gained 4.4k per month. Nevertheless, hours worked remains soft with a gain of just 0.1% in the last three months. Annual pace for total hours worked is 0.8%yr but this is still very soft and it is only positive due to base effects rather than any recent strength.”

“Our Jobs Index continues to point to near-term upside risks for employment. However, in April we expect that survey volatility will see a pull-back in employment. We have pencilled in +5k, rather than flat or even a negative, as the underlying growth in population should be enough generate a positive print.”

“If participation holds steady this should result in an 18k gain in the labour force with unemployment ticking up a bit to 6.0%. It is possible that a soft employment gain may be associated with fall in participation holding the unemployment rate steady. However, we also note that a larger gain in employment is likely to be associated with a rise in participation and thus it is unlikely that we will see a fall in unemployment. Flat to rising unemployment is our preferred forecast spread.”