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Friday, 16 August 2019

Participation, sport!

Jobs galore

A fascinating delta is unfolding in the Aussie labour market.

First, the good news: employment growth outstripped all expectations in leaping by +41,100 in July 2019, inclusive of a massive +34,500 extra full time employed. 

Annual employment growth accelerated to +332,600 or +2.64 per cent, taking total Aussie employment to beyond 12.9 million for the first time.

For some perspective on all the apparently gloomy news out there, the economy has added a thunderous +910,000 jobs over the past three years alone.

The monthly employment gain was mainly due to Queensland (+20,000) and New South Wales (+12,000), with the Premier State recording a thumping +139,000 increase over the year to July. 

Not too much to dislike in those headline numbers, and the near-term odds of further rate cuts decreased accordingly.

In saying that, the leading indicators are now unanimously pointing towards to slowing employment growth going forward, and...

Spare capacity!

So that was the good news.

But meanwhile - something which nobody accurately predicted - the participation rate ripped to a record high 66.1 per cent in July 2019, up from just 64.7 per cent in early 2017, driven by record female participation and more Baby Boomers sticking around in the labour force. 

With participation at the highest level on record the Federal Budget surplus is a shoo-in. 

In turn the labour force has exploded +900,000 higher over the past three years, and even this month's monster jobs growth wasn't enough to stop the number of unemployed persons moving a bit higher to 712,900. 

The total number of unemployed persons has increased by just shy of 50,000 over the past five months, and the unemployment rate has therefore bounced from 4.95 per cent to 5.23 per cent. 

International experience from Britain, the US, and elsewhere suggests that the unemployment rate might need to be about 4 per cent or below before wages growth picks up meaningfully...and we're a long, long way from that.

Measures of underemployment also increased in July, and are far too high. 

Looking around the states the trend unemployment rate in Queensland is 6.4 per cent and rising, in South Australia it is 6.3 per cent and rising, and in Tasmania it is 6.7 per cent and rising. 

The Northern Territory economy is in recession, with employment in the Top End now shrinking.

Tellingly, the national trend growth in total monthly hours worked over the past year decelerated again to just +1.8 per cent.

The wrap

A strong monthly employment result buys some valuable time for the Reserve Bank, for which the Board will doubtless be thankful.

But with and more people being pulled into the labour force from Bondi to Bathurst (and across much of regional Queensland, too, to be fair) there appears to be no end in sight to the spare jobs market capacity.

As employment growth slows over the latter half of the year and beyond, and with inflation already having slowed to a long way below target - inflation swaps see CPI averaging just ~1.5 per cent over the forthcoming decade - the RBA will be left with the choice of cutting further, or holding rates citing a phantom financial stability mandate. 

Markets are pricing for two more rate cuts over the coming six months, while OIS pricing is maxing out at 1.50 per cent all the way out until the middle of this century