G’day, forex mates! If you’re hunting for a potential catalyst for the Aussie, then huddle up since the Australian Bureau of Statistics (ABS) will be releasing Australia’s jobs report tomorrow (August 18, 1:30 am GMT). And it just so happens that I have another Forex Preview to help you get up to speed.
What happened last time?
- Employment change: +7.9K expected vs. +10.0K expected, +19.2K previous
- Jobless rate: ticked higher from 5.7% to 5.8% as expected
- Labor force participation rate: ticked higher to 64.9% vs. steady at 64.8% expected
I concluded in my Forex Preview for Australia’s June jobs report that the “leading labor indicators seem to be pointing to a pickup in employment, so probability is skewed towards a possible upside surprise.” Well, we got a downside surprise instead since the Australian economy was only saw a net increase of 7.9K jobs, which is lower than the expected 10.0K increase. However, we did see an upside surprise for the previous reading since it was upgraded from +17.9K to +19.2K.
And while the jobless rate did tick higher from 5.7% to 5.8%, that was already expected. On a more upbeat note, the uptick was due to the participation rate climbing higher to 64.9%, so blokes and sheilas are apparently getting encouraged to join or rejoin the labor market. Although it is still kinda bad that the Australian economy wasn’t able to absorb the influx of workers.
Going back to the net increase in employment, a closer look at the details of the jobs report shows that the increase was due to the 38.4K increase in full-time employment partially offsetting the 30.6K decrease in part-time jobs. Incidentally, this is the largest increase in full-time employment in seven months, which is good since full-time employment generally pays more and offers more security.
Overall, the jobs report was bad on the surface but net positive when the details are also considered, which is probably why the Aussie got a bullish boost when the report was released. Although it also probably helped that iron ore prices were surging at the time.
What is the market expecting this time?
- Employment change: +10.0K expected vs. +7.9K previous
- Jobless rate: steady at 5.8% expected
- Labor force participation rate: steady at 64.9% expected
For the employment situation in July, economists expect that the Australian economy will generate a net increase of 10K jobs, which is more than the 7.9K increase in June. Meanwhile, the jobless rate and the participation rate are expected to hold steady at 5.8% and 64.9% respectively.
Okay, time to look at some of the leading labor indicators. First up is ANZ’s jobs advertisement survey for the month of July. And the survey results showed a contraction in job advertisements (-0.8% vs. +0.5% previous).
According to commentary from the report, the decline “may partly reflect the impact of increased uncertainty following the close federal election on 2 July and the shock decision by the UK to leave the European Union on 24 June.”
On a more upbeat note, additional commentary noted that the negative impact on hiring intentions “appears to have been short-lived, with job ads picking up over the course of July.”
Moving on, AIG’s performance of services index (PSI) climbed higher from 51.3 to 53.9 in July, but the the employment index dropped by 3.1 points from 53.1 to 50.0, which means that employment in the service sector stagnate in July. 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) jumped from 51.8 to 56.4. And employment index jumped even harder, from 47.9 to 56.5, which means that the manufacturing sector was adding jobs again after shedding jobs back in June. Incidentally July’s employment index reading of 56.5 is the strongest since December 2004.
As for we have AIG’s performance of construction index (PCI), it fell back from 53.2 to 51.6. Likewise, the employment index also fell back from 53.9 to 52.2. The employment index is still above the 50.0 stagnation level, though, so employment still increased overall.
Finally, the employment index for National Australia Bank’s (NAB) Monthly Business Survey held steady at 4.0 index points.
Overall, the leading labor indicators are mixed, but they lean more towards stagnant or weak employment growth, so a downside surprise seems possible.
As usual, just better-than-expected readings usually trigger a quick rally while worse-than-expected readings usually cause a quick selloff. Although there are times when the market focuses more on the details rather than on the headline numbers, such as last time.
Also, make sure to keep an eye on both risk sentiment and commodities, especially reports on iron ore, since they also drive the higher-yielding Aussie’s price action.
Oh, also keep in mind that opening preemptive positions ahead of the jobs report is generally not recommended because, as I also noted last time, the 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.
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