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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Thursday, 17 November 2016

Labour market: weakness under the hood

Unemployment rate lower

Let's begin with the good news, because I'm in a jolly good mood and don't want to spoil it.

It won't take long anyway, as there isn't really that much good news to report!

The unemployment rate ticked down to 5.35 per cent in original terms, the lowest in well over three years.

In seasonally adjusted terms the unemployment rate of 5.58 per cent was the lowest in 42 months, and well below the 6.32 per cent seen in January 2015 (click the graphics to expand, as always!).

Drilling the trend line through the figures, the unemployment rate of 5.6 per cent looks healthy enough. 

In New South Wales the trend unemployment rate has continued to decline to just 4.89 per cent, the lowest figure in nearly six years, while Victoria and Queensland are also moving in the right direction.

The trend hasn't caught up but Queensland's seasonally adjusted unemployment rate dropped to 5.8 per cent. Bonzer.

Tasmania and Western Australia are heading the other way. 

Although not charted here due to their respective small sample sizes, the unemployment rates in the Northern Territory (3.5 per cent) and the ACT (3.4 per cent) are low. 

OK, that's great. Now brace for the not-so-cheerful news....

"Jobs and growth?" Maaate...

Hiring is usually strong at this time of year, and total employment increased by about +78,800 over the last two months.

After accounting for seasonality, however, this month's increase was only +9,800, although that figure did at least include a vast swing back to full-time employment of +41,500. 

This all sounds cool until we revisit what happened last month, which was a big seasonally adjusted drop in employment, while full-time employment is nearly 90,000 lower than at the beginning of the year.

Looking through the noise, the trend in employment growth now looks poor. 

Another way to look at this is to view the annual trend employment change, which has dropped to +108,100, or an a trend annual increase of only +0.9 per cent. 

The annual rate of employment growth is at its lowest level in 23 months and is now below the rate of population growth, and categorically 'not good enough'!

Victoria has now cruised to the top of the employment growth charts, with Victoria (+107,300) and New South Wales (+46,100) accounting for more than all of the net employment growth over the past year.

Employment in Tasmania dived by -3,400 in October to be -4,300 lower than a year ago. 

Queensland employment fell by -16,900 in the month, and by -46,000 over the year. This month's result was a rogue statistic due to the sample rotation from September, though there's no question that employment in aggregate has weakened in the Sunshine State, led by resources-related job losses in locations such as Townsville. 

I'll look at the Queensland figures by region in more detail next week. 

Shadow Treasurer Scott Emerson highlighted that 67,600 jobs had been lost in Queensland since the beginning of the year and that "anyone who sees today's result as good news doesn't understand how tough it is to find a job in Queensland".

He's right about the second part, but clearly he didn't read the commentary on the incoming sample and cocked up his numbers by calculating them from the end of January rather than the beginning. Maybe that was deliberate. Oh well, at least his job doesn't require strong numeracy skills! 

The wrap

While the unemployment rate superficially looks positive, the participation rate is well down and now at the lowest level since early 2006. 

Despite a much improved monthly result, total hours worked - as useful an indicator as any when looking at a volatile survey - increased by only +0.9 per cent over the year to October, and less in trend terms. 

And despite the wild swing back to full-time employment this month, it's important to see through the monthly noise and understand that much of the growth in jobs has been part-time in nature over recent times.

Therefore, we have the weakest nominal wages growth on record, some of the weakest non-tradables inflationary pressures on record, and weak employment growth across recent months. 

Sounds like the easing cycle isn't over to me, but markets remain tentative for now, and job vacancies figures have admittedly been solid enough.

I will just note that when the labour force report prints solidly most commentary states that it must be somehow wrong, yet when the figures are weaker (as they are now) they are instantly taken at face value!

Something to bear in mind if the headline figure snaps back up next month...