One key feature of Australia’s economic performance through much of 2016 and early 2017 was that conditions in the labour market remained soft to the point of causing the national unemployment rate to stay sticky above 5.5% of the labour force and wages growth to languish at a record low 1.7% y-o-y. This soft labour market view was reinforced month after month by the labour force statistics even though the view was at odds with rising job vacancies and relatively respectable GDP growth. The latest March labour force report, however, showed a way bigger than expected 60,900 lift employment, which together with revisions to earlier months now paints a picture of a stable labour market over the past six months, a noticeable improvement on the position the six months previously.
If this stable labour market persists, or improves further, it could help to alleviate some concerns related to high levels of household debt. A relatively fully employed household sector is in a much better position to continue to meet regular mortgage payments for example, even with a third of borrowers as the latest RBA Financial Stability Review points out having a buffer of less than one month’s payment in the event of a sudden loss of income.
The evidence of stability in the labour market comes from the labour force survey which because of its limited sample size and the way the sample changes periodically tends to produce volatility in the results month-to-month that are not necessarily indicative of actual changes in the number of people employed or the unemployment rate. The techniques used to seasonally adjust the data can also lead to misleading readings too.
The statistician tries to iron out some of non-meaningful changes in the seasonally adjusted data by producing a longer-term trend reading incorporating several months of the seasonally adjusted series which while a more accurate reading is not particularly sensitive to reasonable meaningful change in the data over recent months.
The “trend” monthly employment data show gentle acceleration in monthly employment from a 9,300 monthly gain in April 2016 building to a 16,500 monthly gain in March 2017. Over the same period “trend” growth in the labour market – total employment plus those looking for work – has risen from 8,200 monthly gain to 22,300 monthly gain in March 2017. The “trend” data indicates the unemployment rate on a very slow and still continuing upward drift from 5.7% in April 2016 to 5.9% in March 2017.
The “trend” monthly change is at odds with what appear two distinct phases in the monthly seasonally adjusted series – a noticeably weak six-month phase through to September 2016 followed by a noticeably stronger six-month phase through to March 2017. In order to smooth some of the statistical noise in the monthly seasonally adjusted series we have split the data over the past year in to average monthly changes over three-monthly periods.
Taking total employment first, average monthly employment change in the three months to June 2016 was +8,000, but in the three months to September 2016 weakened to -5,900, before lifting to +23,500 average in the three month to December 2016 and +23,000 in the three months to March 2017. The labour force is growing relatively fast too, an average +32,400 a month in the three months to December 2016 and +27,700 in the three months to March 2017. On these three-month average comparisons, however, the gap between labour force growth and employment growth has narrowed almost to the point where the unemployment rate is stable at 5.9%, not still rising as is implied in the “trend” monthly data.
There are signs that employment growth has improved over the past six months and almost to the point of stabilizing the unemployment rate. This national improvement in the labour market masks regional variations. Using the same average three-month measure for the latest period to March 2017 throws some surprises. New South Wales has average employment growth of only 1,300, although its average unemployment rate is just above 5.1%, but drifting up. Victoria has improved much more than New South Wales with average employment growth of 4,800. Victoria’s average unemployment rate is higher at just under 6.0%, but drifting down. Queensland’s average employment growth is impressive at 8,100, but its unemployment rate has drifted up to just under 6.4%. South Australia’s average employment growth is 1,200 (unemployment rate average 6.7% and stable), Western Australia’s is 3,500 (unemployment rate average 6.3% and falling) and Tasmania is 600 (unemployment rate average 5.8% and falling).
The good news is that every state recorded average employment growth in the three months to March 2017. The unemployment rate is stable or falling in four of the six states. Interestingly, New South Wales is showing up as a potential soft spot in this otherwise quite encouraging picture of the labour market.