G’day, forex mates! The Australian Bureau of Statistics (ABS) will be releasing Australia’s jobs report tomorrow (February 16, 12:30 am GMT). And if you’re planning to trade this top-tier event, then you better gear up by reading up on today’s Forex Preview.
What happened last time?
- Dec. employment change: +13.5K vs. +10.2K expected
- Aug. employment change: revised lower from +39.1K to +37.1K
- Dec. jobless rate: ticked higher to 5.8% vs. steady at 5.7% expected
- Dec. labor force participation rate: improved from 64.6% to 64.7%
The Australian economy generated 13.5K jobs in December 2016, beating the consensus of a 10.2K increase. This marks the third consecutive month of jobs gains in Australia. On a slightly more downbeat note, November’s reading was downgraded from +39.1K to +37.1K.
Anyhow, the increase in net employment during December was due to the 9.3K increase in full-time jobs and the 4.2K rise in part-time jobs. Full-time jobs have been seeing net increases for three straight months already. The number of full-time jobs generated in December was the smallest in three months, though. And full-time jobs have been increasing at a weaker pace in the past few months.
Despite the higher-than-expected net increase in employment, the jobless rate worsened from 5.7% to a six-month high of 5.8%.
However, the unexpected uptick in the jobless rate ain’t all that bad, since the participation rate improved from 64.6% to 64.7%. This marks the second consecutive month of improvements for the participation rate, which is a good sign for the Australian economy. Although it is kinda disappointing that the number of unemployed people increased from 726.4K to 741.1K, since that means that the Australian economy wasn’t able to accomodate the influx of workers who joined or rejoined the labor force.
Overall, the December jobs report was mixed, but forex traders were apparently more focused on the jobless rate, since the Aussie slightly tumbles across the board as a knee-jerk reaction to the jobs report. The Aussie later recovered (and then some), though, once forex traders got a better look at the details and noticed that the uptick in the jobless rate was mainly due to the higher participation rate. Also, net gains in employment were due to the third month of gains in full-time jobs, which means that jobs gains in Q4 came mostly from full-time jobs, breaking three consecutive quarters of net losses in full-time jobs. And full-time jobs are good because they generally pay out more and offer better job security compared to part-time jobs.
What is the market expecting this time?
- Employment change: +10.0K expected vs. +13.5K previous
- Jobless rate: steady at 5.8% expected
- Labor force participation rate: steady at 64.7% expected
The general consensus among most economists is that Australia generated 10K jobs in January, which is softer increase compared to December’s +13.5K. As for the jobless rate and the participation rate, they’re both expected to hold steady ay 5.8% and 64.7% respectively.
Okay, what do the leading labor indicators have to say?
AIG’s performance of services index (PSI) for January tumbled from 57.7 to 54.5. And the employment sub-index tumbles with it, dropping 2.8 index points top 53.8. This means that employment still grew in the service sector, albeit at a slower pace compared to the previous month.
Next, AIG’s performance of manufacturing index (PMI) also deteriorated in January, falling from 55.4 to 51.2. The employment sub-index index was still below the 50.0 neutral level, though, so jobs were still being shed in the manufacturing sector. However, January’s employment sub-index improved from 47.4 to 49.6, so employment levels did stabilize a bit.
As for AIG’s performance of construction index (PCI), the headline reading improved slightly from 47.0 to 47.7. And the employment sub-index improved more quickly, jumping from 43.5 to 47.3. The reading is still below the 50.0 neutral mark, though, so job shedding continued at a reduced rate.
Finally, the employment index for National Australia Bank’s (NAB) Monthly Business Survey jumped from 2 index points to 7 index points. Commentary from NAB noted that the jump “points to an annual job creation rate of around 240k (around 20k per month) in coming months.”
Looking at historical trends, Australia usually sheds a lot of jobs in January. However, seasonal adjustments mean that the seasonally-adjusted readings are usually positive numbers.
In addition, estimates by economist tend to fall short more often than not, resulting in more upside surprises. Although it should be noted that economists have been overshooting their estimates in the past three years, resulting in three consecutive downside surprises.
Moreover, December’s reading usually gets upgraded, so watch out for that as well.
Overall, the available leading labor indicators are mixed, since NAB is pointing to an acceleration in jobs growth while AIG is saying that jobs growth in the service sector moderated in January. And the labor-intensive service sector is the biggest generator of jobs in Australia. However, there’s still a chance for an upside surprise, since it’s possible that the more stable employment levels in the manufacturing sector, as well as the slower job shedding in the construction sector, may have partially offset the weaker jobs growth in the service sector.
And while economists have historically been undershooting their forecasts, that historical trend seems to have ended, since economists have been overshooting their January forecasts for the past three years. And it remains to be seen if we’ll be getting the fourth consecutive downside surprise or if historical trends would revert to the old pattern of upside surprises. It’s therefore rather hard to gauge how the jobs report would turn out, based on historical patterns.
Anyhow, just keep in mind that better-than-expected readings, especially for the jobless rate, usually cause a quick Aussie rally as a knee-jerk reaction. Worse-than-expected readings, meanwhile, usually cause a quick Aussie selloff.
For follow-through buying or selling, market players tend to look at the full-time employment numbers and the participation rate. Although updates on commodities, namely iron ore, and risk sentiment, as well as China-related reports, also usually come into play.