In case you’re still too busy looking up the difference between hombre and ombre, then you should know that Australia’s labor market reports just did a number on the Aussie.
Here’s what you need to know:
Big misses. Big. Huge!
In our trading preview yesterday, we noted that Australia’s leading indicators are pointing to a pickup in hiring in September. As it turned out, market players were facing big misses. Big. Huge!
The report showed that a net of 9,800 workers lost jobs in September, which is far from the 15,200 job gains that market players were expecting. And what’s worse than weak reports?
Downward adjustments to last month’s already weak numbers, of course! August’s unemployment rate was revised higher from 5.6% to 5.7% while the net job losses were revised from 3,900 to 8,600. Yikes!
The only bright spot was the decrease of the unemployment rate from 5.7% to 5.6% and even that was taken with a bucket of salt. See, the labor participation rate also fell from 64.7% to 64.5%, the lowest in almost two years.
With a net job loss for the month, this means that the decrease in the unemployment rate was mostly due to workers giving up on their job prospects instead of finding them.
Part-time means hard time for Australians
If we look closely at the 9,800 job losses, we’ll see that it’s due to 53,000 workers losing their full-time jobs. This marks the biggest monthly drop since April 2011! What’s more, this is only partially offset by the 43,200 gain in part-time work.
So far the 162,800 part-time jobs added this year is the biggest gain on record going back to 1978. Meanwhile, the 112,100 full-time jobs cut in the same period marks the worst since 1991 when the economy was in recession.
To add insult to injury, the underemployment rate, or the portion of those who are employed but want to work longer hours, is now at a record high of 8.7%, a huge gap from last year’s 7.8%.
So while the unemployment rate is at its lowest in three years, we know that it’s partly due to potential workers giving up on looking for jobs and partly because workers are now accepting part-time jobs and are working for fewer hours than they’d like.
The prospect is worrying investors who believe that the understatement of Australia’s labor market problems will lead to limited household income growth.
Already rating agency Moody’s warned that underemployment was a major cause of rising mortgage repayment arrears, which are at a three-year high nationally and record levels in Western Australia, Tasmania, and the Northern Territory.
Not all analysts believe this month’s numbers
The Australian Bureau of Statistics (ABS) used to base its surveys on 26,000 households each month but has since cut back due to budget concerns. They now rotate their samples to make sure new households are interviewed and that the survey closely reflects the population’s make-up.
Number crunchers warned of volatility in the September data because it was a rotation month. In addition, ABS revealed that it had reduced the influence of a new group of Queensland households.
Jacqui Jones, program manager of the ABS’s Labour and Income Branch, revealed that “some 580 households out of 4600 in the state were dropped as their responses were ‘significantly different’ in its labor force characteristics compared with the rest of the Queensland sample.”
Since the breakdown shows that Queensland employment fell by 4,100, it could be that the actions of the ABS meant that the fall in employment was smaller than would otherwise have been the case.
AUD fell sharply across the board
Not surprisingly, the Aussie’s price action turned bloody as soon as the reports were printed.
So should we expect a rate cut from the RBA?
Not necessarily. In its meeting minutes released earlier this week, the Reserve Bank of Australia (RBA) already noted the mixed nature of Australia’s jobs numbers across its states, as well as the increase in underemployment in the labor market.
In a speech, RBA Chief Phillip Lowe also remarked on Australia’s spare capacity and said that and that “RBA staff estimate the jobless rate is about half a percentage point ‘or a bit more’ above full employment.” In fact, it seemed as if the RBA was looking at inflation over any other indicator for cues on its next policy decisions.
Employment remains one of the RBA’s key concerns though, with Lowe also threatening that “the case for moving more quickly to cut rates would be strengthened in a world where the labor market was deteriorating.”
So while the RBA won’t necessarily cut its rates because of two month’s worth of poor (and questionable) employment data, you can bet your momma’s cats that Lowe and his gang are keeping close tabs on its impact on the economy and are already making plans in case problems in the labor market problems spill over to household spending and inflation trends.