Australian Job Market: Improving Or Not?

With the country’s overall growth slowing down, everyone braced for weak labor figures from Australia. Ahead of the release of Wednesday’s employment reports, leading indicators gave the markets an impression that the jobs market was struggling. For instance, Australian job advertisements posted its fourth consecutive month of decline in June, printing at -1.8%.

The consensus was for the employment report to show a measly figure of 300 for June (which wasn’t even half the number of jobs lost in May) and the unemployment rate to tick higher at 5.6% from 5.5%.

But surprise, surprise! There were actually way more jobs generated during the month. June saw the number of employed Aussies climb up by 10,300. Yep, that’s 10,000 more people than what experts predicted.

Unfortunately, the uptick was accompanied with a rise in the unemployment rate. We saw the rate of joblessness increase even further from 5.6% (upwardly revised from 5.5%) in May to 5.7% in June. Take note, this level hasn’t been reached since 2009.

Part of the uptick can be explained by the rise in the participation rate, which measures the percentage of the labor force in proportion to the rest of the population. It ticked higher to 65.3% from 65.2% in May.

But similar to the U.S. labor market, the composition of jobs created in Australia leaves much to be desired. While we witnessed an increase of 14,800 in part-time jobs, the number of full-time workers declined by 4,400. This reflects cautiousness among businesses, implying that they aren’t confident enough to increase their staff in the current economic environment. And so, they favor part-time positions instead.

AUD/USD Reaction

The unexpected increase in the unemployment rate indicates economic weakness, but the positive reaction on AUD/USD suggests that traders have given more importance to the upside surprise in the number of jobs added and the increase in the participation rate.

AUD/USD Chart

As a result, AUD/USD found support at .9220 which is a former resistance level and spiked higher.

Outlook for the Job Market and Monetary Policy

If RBA Governor Glenn Stevens is to be believed, then the worst is yet to come. According to the central banker, the country will likely see its labor market soften even further as it shifts away from mining-led growth.

Many analysts agree with this grim outlook for the labor market and believe that the unemployment rate will continue rising to surge past 6.0% within a year.

Commonwealth Bank chief economist Michael Blythe estimates that monthly job creation needs to clock in at about 17,000 just to keep the unemployment rate from rising. If that’s the case, then hiring in Australia needs to seriously pick up its pace just to maintain the status quo.

The gradual uptrend that has developed in the unemployment rate over the past few months, along with overall below-average growth and subdued inflation, certainly builds a solid case for another RBA rate cut. Many believe that it could come as soon as next month.

If you ask me, this is quite possible. After all, just last week, the RBA signaled that it would like to see the Australian dollar trade lower. A rate cut in August would certainly help them realize this goal.