Total employment lifted a solid 39.1k in January, well clear of the market median of 15k. The year started with a solid trend pace of employment growth with a three month average gain of 31.9k. While it is just one month into the year, employment has gained 271k in the year to January (2.2%yr) with a very solid 2.9%yr six month annualised pace.
There is, however, an important caveat – January is the peak holiday month in Australia as Christmas, New Year and school summer vacation all come together. Little business happens in Australia at this time.
There are a number of near term leading indicators we use to get feel for the any changes in the near term direction in momentum in employment –Westpac Jobs Index, ANZ Job Ads and Westpac-Melbourne Institute Unemployment Expectations. It is true that these indicators have softened but they are not pointing to a collapse in employment (at this stage). We believe that employment growth is set to stall through the first half of 2019, in part due to uncertainty surrounding the April Federal election but also some payback for the earlier strength in the labour market. However, our –5k forecast for February is more about monthly volatility than the start of a new trend.
Despite the strong gain in employment, the unemployment rate was flat in January at 5.0% (market median was for 5.0%) as a 0.1ppt lift in the participation rate to 65.7% (65.72% at two decimal places) boosted the gain in the labour force by 45.7k.
It is also worth noting that 2018 produced a –0.2ppt decline in the underemployment rate from Q1 to Q4. In January there was a further improvement in underemployment to 8.2% (from 8.3%) the lowest print in underemployment since March 2015. Again, we would caution that this is a January print so would not project that this improvement can be sustained but nevertheless, it is another indicator of just how robust the labour market was through 2018.
Holding the participation rate flat at 65.7%, our forecast for a –5k fall in employment will see the unemployment rate tick up to 5.1%.
We will be closely watching the state data as through 2018 Victoria reported the largest fall in unemployment and underemployment. Victorian unemployment fell almost 2ppts to 4.2% by December while in NSW unemployment fell just 0.5ppts to 4.3%. This is significant as the Victoria wages have been far more responsive to labour market conditions than wages in NSW. If this holds, we are on the cusp of an uptick in Victorian wages.
As 2019 started, NSW picked up the mantle as the state with the strongest labour market. In the month, employment lifted 47.2k (161.6k in the year), unemployment fell to 3.9% (a new record low) and confirming this is a strong print (rather than a soft unemployment rate due to declining participation) NSW employment to population ratio has also hit a new record high of 62.6%.
In January Victoria continued to make gains (2.2k/114.2k in the year) but it was a different story in the other states. Queensland employment pulled back (–19.9k/5.6k in the year) while employment was flat in WA (0.8k/0.9k in the year) and fell in SA (–4.5k/1.6k in the year). Victorian unemployment lifted in the month (4.5% from 4.2%) allowing NSW to reclaim the mantle of having the lowest unemployment rate.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
