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

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Friday, 25 November 2016

What's driving slower employment growth?

Jobs growth slows

Year-on-year employment growth has slunk back to +0.8 per cent, inflation is tracking well under the target range, and GDP looks likely to print flat-to-negative in Q3 2016.

And yet, in spite of all of this the cash rate futures yield curve is barely inverted. 

That is, markets are buying the Trump effect and rising commodity prices meme, and now believe that the monetary easing cycle is over.

With the end of the mining cliff now in sight and the Reserve Bank reluctant to cut interest rates further, markets are betting that the combination of a lower dollar and looser fiscal policy will see us muddle through.

Big call, but maybe!

The Detailed Labour Force figures for October 2016 confirmed the slowdown in hiring.

On the plus side, Sydney's unemployment rate continued its decline to just 4.58 per cent, while the unemployment rate in Greater Brisbane dropped to only 4.81 per cent in October. 

In the context of the Reserve Bank's belief that 'full employment' is represented about an unemployment rate of about 5 per cent these are blindingly good numbers, but in Brisbane's case in particular they mask a good deal of underemployment and under-utilisation. 

The unemployment rate numbers are a little volatile month to month, so below I have smoothed them on a 12mMA basis. 

Generally the unemployment rate story has been one of a steady improvement.

Around the traps

Between the two of them Greater Sydney and Melbourne have added +115,700 jobs over the past year, which is comfortably greater than the national total of only +100,100. 

For some reason employment in regional New South Wales has declined by -41,000 over the past six months (this is rather surprising, as generally speaking the state has appeared to be home to the strongest regional economies).

After years of stagnation, regional Victorian employment has now eked out a fresh high of above 700,000, in part due to solid year-on-year employment growth in Geelong. 

But if Melbourne and Sydney have added nearly +116,000 jobs over the past year, how can it be that national employment growth has slowed to around only +100,000?

The annual weakness is accounted for by Perth (-21,000), and especially regional Queensland (-40,000), where employment growth has been absolutely crunched.

On the one hand, this may not be such a surprise, since we've known for a long time now that many of Queensland's resources economies are desperately weak.

On the other hand, 13 per cent of Queensland's labour force sample was rotated out this month, and the ABS noted a greater than usual movement in the characteristics between samples. 

In other words, we should be a little bit cautious with the Queensland numbers until more information becomes available.

The recent weakness in regional Queensland employment is so pronounced that total employment is -26,800 lower than it was even half a decade ago in October 2011.

The wrap

A very significant slowdown in employment growth, which will be mirrored by a weak GDP result for the third quarter. 

Employment growth has been skewed for quite some time towards the largest capital cities.

Indeed, if you tot up all of the net employment  growth over the past five years from Greater Hobart plus the regional areas of Tasmania, Queensland, South Australia, Western Australia, and the Northern Territory, the figure comes to a negative result of -13,700.

Over the same five years, Sydney and Melbourne have added +442,100 jobs on a net basis.

So much for the 'parasite' economies of MEL-SYD - what a daft argument - not only are these two cities alone accounting for most of Australia's services exports and attracting the bulk of foreign investment, they are now creating (more than) all of the jobs too, and as such the future tax take. 

Melbourne in particular has been the king of employment and population growth over the past year.