From Westpac’s Justin Smirk:
The Index firmed in August pointing to employment growth of just under 2%yr.
There are many business surveys out there and most have questions that are applicable to the labour market. To generate the broadest and deepest labour market indicator possible, Westpac compiles all the relevant indicators from these surveys into the proprietary Westpac Jobs Index.
The Jobs Index firmed in August, lifting to 50.7 from 49.8 in July. This is on par with the recent high of 50.8 in May and you have to go back to April 2011 to find another reading as high (50.9). Remember, the Index is set so the long run average equals 50.
The Index correctly highlighted some upside momentum in employment growth through late 2014, up to around a 2%yr pace by end 2014. Employment growth hit 1.8%yr in Dec 2014. The Index also picked a moderation around April/May (employment averaged 1.6%yr) before an acceleration to around 2% from June to September. Employment growth hit 2.1% in July.
Even in July the Index had been pointing to a moderation in employment growth as we headed into year-end but it has bounced back suggesting employment growth could now hold just under 2% to year-end.
There are two key points from the components of this month’s update.
- The AIGoup surveys are volatile. The May spike was due to an extremely robust reading from the PSI (Services Index) but this month it has been the Construction Index (PCI) which has a history of being the source of volatility. Westpac composite AIGroup Index is back above its long run average at 53.4. 2.
- In August, the NAB monthly employment indicator improved from –1.2 to –0.7 in July. But it is still a negative read and down from the 0.8 in June. Our NAB composite Index was broadly flat at 50.0 in August from 49.8 in July.
The trend improvement in the Jobs Index has recently been matched by a trend improvement in Unemployment Expectations. Unemployment Expectations have been lagging the Jobs Index and have a more negative overall sentiment though through the first half of 2015 both were on a stronger trend. But this trend improvement is starting to fade as both series appear to have passed a peak. We are watching closely for what the next leg will be as we head into 2016.
Westpac is forecasting that total employment growth to slow to around 1.9%yr by the end of Q3 and this moderation to continue with the pace easing back to 1.5%yr by year end. With a steady participation rate this is enough to lift the unemployment rate to rise to 6½% sometime in Q4.
What of the expected downward revisions to population growth? As these revisions won’t affect the ratios derived from the Labour Force Survey, population growth revisions will result in revisions to employment but should leave the unemployment rate unchanged.
