G’day, forex mates! There’s a better-than-average chance that the Aussie is gonna get a volatility infusion tomorrow because the ABS will be releasing its monthly jobs report (July 14, 1:30 am GMT). And if you’re planning to trade this top-tier event, then get up to speed with another edition of my Forex Preview.
What happened last time?
- Employment change: +17.9K expected vs. +15.0K expected, +0.8K previous
- Jobless rate: steady at 5.7% as expected
- Labor force participation rate: steady at 64.8% vs. uptick to 64.9% expected
In my previous Forex Preview for Australia’a May jobs report, I concluded that “the leading labor indicators are pointing to a possible slowdown in employment growth, so it seems chance is heavily skewed towards a potential downside surprise.”
Unfortunately for us (but fortunately for Australia), we didn’t get one. In fact, the Australian Bureau of Statistics (ABS) gave us an upside surprise instead, with Australia generating 17.9K jobs in May, which is more than the expected 15.0K increase. We did get a downside surprise for the previous reading, however, since it was downgraded significantly from 10.8K to a paltry 0.8K, , due to full-time job losses in May being revised from 9.3K to a much higher 18.2K loss.
Digging deeper into the details of the jobs report, the better-than-expected reading wasn’t all that good after all, since growth in full-time jobs was stagnant, which means that the 17.9K increase all came from part-time jobs, and part-time jobs are less desirable because they generally offer less security and pay less to boot.
Looking at the other labor indicators, Australia’s seasonally-adjusted jobless rate held steady at 5.7%, which is a multi-year low while the labor force participation rate held steady at the 10-month low of 64.8% instead of ticking higher to 64.9%, which is bad because many blokes and sheilas are apparently not encouraged enough to join or rejoin the labor market.
The only silver lining was was that the seasonally-adjusted monthly hours worked increased by 1.71% to 27.7 million hours, thereby ending three straight months of decreases. Also, this means higher earnings and possibly higher productivity.
Forex traders initially reacted to the better-than-expected reading for employment change by buying up the Aussie against almost all of its peers. They then began dumping it hard across the board after taking a closer look at the details and seeing that the jobs report was not so good after all.
What is the market expecting this time?
- Employment change: +10.0K expected vs. +17.9K previous
- Jobless rate: uptick to 5.8% from 5.7% expected
- Labor force participation rate: steady at 64.8% expected
For the upcoming jobs report, the general consensus among economists is that Australian will see a net increase in employment of around 10K, which is fewer than the previous month’s net increase of 17.9K. Also, the jobless rate is expected to worsen from 5.7% to 5.8% while labor force participation rate is not expected to pick up from the multi-month low at 64.8%. The overall expectation, therefore, is that Australia’s jobs data will deteriorate.
Okay, but what do our leading labor indicators have to say?
Well, ANZ’s jobs advertisement survey for the month of June reported that job advertisement continued to increase, albeit at a slower pace (0.5% vs. 2.2% previous). The slower increase in job advertisements “could partly reflect some uncertainty by firms around the near-term outlook,” according to commentary from the report.
Moving on, AIG’s performance of services index (PSI) eased a bit from 51.5 to 51.3 in June, but the the employment index jumped by 4 points from 49.1 to 53.1, so employment in the service sector finally went above the 50.0 stagnation level for the first time since August 2015. However, the health and community services industry and the property and business services industry, which account for about 27% of Australia’s workforce, were both slightly contracting, but it remains to be seen of the gains from other industries would be able to offset the losses from these two labor-intensive industries.
Next, AIG’s performance of manufacturing index (PMI) climbed from 51.0 to 51.8 while the employment index for the manufacturing sector climbed at a faster pace from 45.6 to 47.9, which means that the job shedding in the manufacturing sector slowed down.
After that, we have AIG’s performance of construction index (PCI), and it charged higher to 53.2 from 46.7, and the employment index charged higher with it, jumping from 49.0 to 53.9.
Finally, the employment index for National Australia Bank’s (NAB) Monthly Business Survey advanced from 1.0 index point to 4.0 index points. According to commentary from the NAB survey, this reading “hints at an annual job creation rate of around 212k (around 18k per month) in coming months, which would be more than sufficient to lower the unemployment rate further.”
Overall, the leading labor indicators seem to be pointing to a pick up in employment, so probability is skewed towards a possible upside surprise.
As usual, keep in mind that better-than-expected readings usually trigger a quick rally while worse-than-expected readings usually cause a quick selloff. Preemptive positioning ahead of the jobs report is not recommended, however, since ABS is prone to revisions and printing numbers that are way off expectations, so much so that some economists are saying that the ABS is unreliable. Even ABS Head David Kalisch said last year that people shouldn’t be too serious with the numbers. Anyhow, for follow-through selling or buying, you need to dig through the details of the jobs report and you also need to keep an eye on both risk sentiment and commodities since they also drive the higher-yielding Aussie’s price action.
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