Westpac last night released its consumer unemployment expectations report for May, which points to a moderate improvement in labour market conditions; although the unemployment rate is still expected to trend upwards as employment lags population growth:
The unemployment expectations index fell 0.5% in May following on from a 3.2% decline in Apr. This broke a strong trend we saw through Mar and Feb (5.5%mth and 2.3%mth respectively. So far this year, the index has lifted 3.9% to be 6.2% higher over the year.
The May fall has reversed the trend, which fell 1.2%mth in May. From late 2013 to Apr there had been a trend rise in unemployment expectations but this does appear to have shifted.
The Melbourne Institute notes that this survey was conducted in the week of the budget announcement. The survey suggested a deterioration in expectations after the announcement. Unemployment expectations were at 153.8 before the budget, but rose 4.5% to 160.7 after.
This raises 2 important points; 1) without the budget, the improvement in expectations would have been much larger; and, 2) we have to wait to see if the post budget deterioration is temporary.
From its Sept 2013 low, the index is now up 11%. The rise from Sept peaked at 15.3% in Mar. This has broken the pessimistic trend, suggesting households are less anxious about the outlook.
Nevertheless, the trend is still 26% higher that its 10 year average, consistent with the observation that employment growth continues to underperform relative to population growth.
In Apr, two of the five states recorded falls in expectations; NSW & WA remain optimistic about their employment prospects. Expectations in NSW decreased by 7.4%, while the fell in WA (3.0%), Vic (0.1%), Qld (7.7%) & SA (1.8%).
Expectations are point to a soft patch in hours worked and the ABS data has corrected this way in the last few months. In particular, expectations suggest hours worked can weaken further in Vic, Qld and WA. Interestingly, Melbournians are the most worried about unemployment.
Sales/clerical have the highest unemployment expectations but the rest are not too far behind. And those with tertiary or trade qualifications remain the most worried. Interestingly, those buying their home now have higher unemployment expectations than those renting or that have already paid off their mortgage. It was these mortgage free households that used to be the most worried.
While the index is still pointing to a higher unemployment, the rate of change in unemployment expectations has eased back meaningfully which has eased the pressure on the RBA for any rate cuts.
Westpac job index, a composite of the various business surveys, is also pointing to a further improvement in unemployment expectations.
Overall, some moderately positive news; although the outlook is clouded by uncertainty over whether the fallout from the Budget will prove to be temporary.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
