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Thursday, 14 April 2016

Unemployment falls to 2.5 year low


The ABS Labour Force release for March 2016 surprised by showing the unemployment rate falling to 5.7 per cent, fairly trouncing expectations to hit the lowest level seen since September 2013.

We can't even blame the sample rotation this time, as the incoming cohort had a greater propensity not to wok that the outgoing sample!

Let's take a look in two parts.

Part 1 - Employment

After a few subdued months, total employment increased by +26,100 in March to 11,909,600, though more than all of the monthly gain was accounted for by part-time positions.

Trend employment growth soldiers on, rising by +7,700.

Much of the gain in employment has been seen in female and part-time employment of late, as part of the rebalancing of the economy.

Perhaps more significant than the monthly figures, the trend annual rate of employment growth has slowed to +2.2 per cent, although this remains well ahead of the rate of population growth at +1.3 per cent, suggesting that the unemployment rate should be shaping down over time.

In seasonally adjusted terms the economy added +235,000 jobs in the year to March 2016, and in trend terms the annualised figure was still strong at +251,200.

Over the past year nearly all of the employment growth has been accounted for by New South Wales (+126,400), Victoria (+60,300), and Queensland (+40,600).

The rate of employment growth in New South Wales has slowed from wildly strong levels, to "only" +3.5 per cent.

Cumulatively employment growth has been skewed to the two most populous states in recent years, although at least South Australia has been inching into positive territory.

Part 2 - Unemployment to 29-month-low

The main surprise from this release was that with the participation rate holding steady the unemployment rate declined to 5.72 per cent, the lowest reading in two-and-a-half years.

Putting the numbers in their broader context and overlaying the trend line shows that the unemployment rate has been steadily improving for 15 months.

The month to month figures will bounce around a bit, but it does seem that the unemployment rate in this cycle peaked earlier than had been anticipated.

At the state level unemployment rates just about remained in a downtrend in New South Wales, Victoria, and Queensland.

Notably the jobless rate in NSW fell to a three year low.

Surprisingly, perhaps, the unemployment rate in Western Australia also seems to be improving according to these figures.

Finally one other good snippet of news is that youth unemployment is in a 16 month downtrend and at a near three year low.

The wrap

This was certainly a more mixed report than suggested by the headline figures, with hours worked declining in the month (although they are up over the last year) and part time employment accounting for the jobs gains.
That said, with the unemployment rate declining to its lowest level in two-and-a-half years, and commodity prices such as iron ore and oil having rallied unbelievably hard since early 2016, there is no chance of any rate cut in May.

Indeed rates could be on hold for an extended period now.