G’day, forex mates! If you’re hunting for a potential catalyst for the Aussie, then huddle up since we’ll be getting Australia’s March period jobs report tomorrow (April 13, 1:30 am GMT). And if you’re planning to trade this event, then get up to speed with another edition of my Forex Preview.
What happened last time?
- Net employment change: -6.4K vs. +16.3K expected, +13.5K previous
- Jobless rate: jumoed to 5.9% vs. steady at 5.7% expected
- Labor force participation rate: steady at 64.6% as expected
According to Australia’s February jobs report, Australia suffered a net loss of 6.4K jobs, which is rather disappointing because a net increase of 16.3K was expected.
But on a slightly upbeat note, full-time employment partly recovered from January’s 44.1K loss by printing an increased by 27.1K. It just so happens that the loss of 33.5K part-time jobs was able to more than offset the increase in full-time jobs.
Moving on, the jobless rate deteriorated from 5.7% to 5.9%, which is the worst reading since January 2016. The labor force participation rate held steady at 64.6% as expected, but the number of unemployed people increased by 26K to 748.1K.
This means that the Australian economy not only lost jobs, it also failed to keep up with working-age population growth. It’s therefore no great wonder why the RBA expressed some concern about the labor market during the latest RBA statement.
Overall, Australia’s February jobs report was rather disappointing, which is why the Aussie’s commodities-fueled rally at the time got stopped in its tracks as the Aussie began to get bombarded by sellers. Commodities continued to rally at the time, though, so the Aussie’s losses were only limited.
What can we expect this time?
- Employment change: +20.3K expected vs. -6.4K previous
- Jobless rate: steady at 5.9% expected
- Labor force participation rate: steady at 64.6% expected
For the employment situation in March, the general consensus among most economists is that the Australian economy generated 20.3K jobs.
The jobless rate and the labor force participation rate, meanwhile, are expected to hold steady at 5.9% and 64.6% respectively.
Looking at the available leading indicators, AIG’s performance of manufacturing index (PMI) eased by 1.8 points to 57.5. And the employment sub-index suffered an even harder drop, sliding by 3.4 points to 54.1. This means that employment is still growing in the manufacturing sector, albeit at a slower pace compared to February.
Next, AIG’s performance of construction index (PCI) also deteriorated, falling by 1.9 points to 51.2. The employment sub-index index went in the opposite direction, though, since it advanced by 1.7 points to 55.2, so employment apparently picked up in the construction sector.
As for AIG’s performance of services index (PSI), the headline reading jumped from 49.0 to 51.7. And the employment sub-index not only jumped – it surged by 5.8 points to 55.0.
Finally, the employment index for National Australia Bank’s (NAB) Monthly Business Survey held steady at 5 index points in March. Commentary from NAB noted that even though the reading was unchanged, “it generally points to a healthier labour market than official statistics.” Additional commentary from NAB also noted that the reading “points to an annual job creation rate of around 216k (around 18k per month) in coming months, which is sufficient to see the unemployment rate ebb lower (all else unchanged).”
Looking at historical trends, there’s really no historical trend for March. Although as you see below, it’s clear that the smoothing effect of seasonal adjustments mean that the seasonally-adjusted reading tends to be lower compared to the actual unadjusted numbers.
As to how economists have fared with their projections, well, they historically tend to undershoot their estimates. As a result, there are far more upside surprises than downside surprises.
Overall, the available leading indicators point to a recovery in jobs growth. True, AIG’s employment sub-indices for the manufacturing and construction sectors deteriorated, but they’re still above the 50.0 stagnation level.
Moreover, the employment sub-index for the service sector printed a significant increase, which points to faster jobs growth that may potentially more than offset any weakness from the manufacturing and construction sectors. After all the services sector does account for the bulk of jobs.
Aside from AIG’s reports, NAB maintained the reading for its employment index. However, commentary from NAB was still upbeat.
And regarding historical tendency, chance seems skewed more towards an upside surprise, since economists historically tend to undershoot their estimates.
Anyhow, just keep in mind that better-than-expected readings usually triggers a quick Aussie rally. Meanwhile, worse-than-expected readings usually cause a quick Aussie selloff as a knee-jerk reaction.
For follow-through buying or selling, the reading for full-time employment and the participation rate usually come into play. Although updates on commodities, namely iron ore, and risk sentiment also usually weigh in on the Aussie’s price action.