The bank economists are unanimous that today’s jobs print is misleading. My own view is that the employment market is clearly in flux between sectors, as well as full and part time positions based around Australia’s informal kurzarbeit labour market. Having been burned for several months earlier this year I had already brought in my own unemployment expectations so am not that surprised. And it is some small comfort that there was no apparent acceleration in job cuts in April, not confirming the dramatic deterioration in the PMIs. Then again, the freeze in demand apparent in those indexes would not translate immediately to job losses so at this stage I’ll reserve judgement.
Markets are a bit more positive but not exuberant. 12 month overnight index swaps rallied half a cut or so but are still pricing between three and four cuts in the year ahead:
I reckon it’s still too early to judge the June move for rates. Data is very conflicted and sending some pretty wild signals. As such, the banks are largely sticking to their rate calls as well.
CBA:
Today’s 15.5k rise in jobs in April was a pleasant shock to the markets. Market expectations were centred on a fall of 5k {CBA (f) +5k}. Given the volatility in the monthly jobs data it is unlikely to change market expectations. The expectationsare based on the forward indicators which are pointing to weak outcomes over coming months which means a higher unemployment rate. The RBA and government have indicated that it expects a flat jobs market and the unemployment rate to drift upwards, towards 5.5%. The labour market is not as robust as a 4.9% unemployment rate suggests, nor is it collapsing as some commentators have feared.
Over the past year jobs growth of 69.1k, or 0.6%pa, was composed of 10.2k full‑time (0.1%pa) and 58.9k part‑time (1.7%pa). The jobs market has essentially moved sideways over the year. Part‑time job gains predominate as employersreact to the uncertainty by limiting new hiring and contain costs. The picture varies between sectors. There have been high profile job losses in manufacturing, tourism and retail offset by not well publicised jobs growth in health, mining, government and professional sectors. The mining States are adding jobs while the other States lose them.
Across the states, employment growth was driven by Vic, which reported a 23k rise in the number of people employed. WA added 6.8k jobs and QLD added a marginal 200 jobs in April. NSW jobs fell 23.8k in the month, reversing the 20.6k rise in March. SA jobs fell 2.9k followed by Tas, down 2.5k. The unemployment rate gap (the difference in the unemployment rates between the strongest and weakest states) increased to 4.4%, which is more than three times the level it was a year ago. This divergence between the states highlights the underlying structural change occurring in Australia’s two‑speed economy. The difference in labour market outcomes and activity levels between the States adds to the low inflation story underpinning the likelihood of further rate cuts. We expect the RBA to cut the cash rate by another 25bpt in August.
Looking forward we expect to see small positive gains in jobs. But that will not be able to match the 15k seeking work each month. So the national unemployment rate should edge higher, to about 5.5% in late 2012. We see a strong chance of another RBA rate cut, to 3.50%, in August because inflation pressures are benign. Some moderation in private sector wages growth also appears to be underway. Financial markets are pricing in a sub 3% cash rate by year end, as downside risks to world growth build, driven by EU problems.
ANZ:
Employment rose by 15.5k in April, which was well above market expectations of ‑5k for the second consecutive month. The unemployment rate fell from 5.2% to 4.9% (-0.24ppts in unrounded terms), which was well below even the most optimistic expectation and the lowest in a year. This was associated with a lower participation rate, however, which declined by 0.14ppts to 65.2%. Over the 6 months to April, employment increased by an average of around 8k per month, which is below its 20-year trend of around 15k per month.
While labour market conditions appear to have stabilised following the poor jobs outcomes around the turn of the year, overall they remain soft outside of the resources states, particularly WA. Part-time employment rose strongly for the second consecutive month, while full-time employment declined. The relatively sharp fall inAustralia’s participation rate over the past year or so outside of WA partly reflects that jobs are being created in locations, and with skill requirements, that cannot be easily met by those losing their jobs elsewhere. In trend terms, WA produced more than all of the net increase in jobs over the 12 months to April; employment inQueensland also rose but declined elsewhere.
The RBA noted in their May Statement on Monetary Policy that they expect employment growth to remain subdued this year, which is consistent with our expectations. Last week we changed our interest rates call to 75bps of rate cuts by the end of this year and today’s labour data do not change this view.
Westpac:
April employment print stronger than expected, highlighted by a stronger than expected recovery in Victoria, but the fall in the unemployment overstates the strength of the labour market due to a surprising fall in participation.
The 15.5k rise in jobs was at the top end of market expectations but more surprising was the drop in the unemployment rate from 5.18% to 4.94%. This outcome was driven by the participation rate falling to 65.20% from 65.34% which was worth 26k for the labour force. That is if the participation rate had held constant then the labour force would have lifted 12.7k rather than the –13.3k reported and the unemployment rate would have fallen to just 5.15%. The reason we highlight this as it is very rare that the labour force fall when there is a positive jobs number. What we have found is when there is a positive jobs print, history suggests that one in eleven prints will also be associate with a negative print in the labour force. So normally it happen just once a year on average but interestingly, we had 2 such events in 2010 (which was a very weak labour market) and the magnitude of the April dispersion between employment and the labour force is on par with those events in 2010.
Regardless of how we slice and dice the data, the RBA will take some comfort from the unemployment rate dropping back below 5%. While we do expect to see this reversed in May, this data will not be released until after the June RBA board meeting. As such, we are not surprised that the market has started to remove the pricing for the chance of a June rate cut.
