G’day, forex mates! The Australian Bureau of Statistics (ABS) will be releasing Australia’s December jobs report tomorrow at 12:30 am GMT.
There’s therefore a very good chance that the Aussie may get a volatility infusion. And if you need to get up to speed on that top-tier event, then it’s time to read up on another edition of my Event Preview.
What happened last time?
- November employment change: +61.6K vs. +18.1K to +19.0K expected
- October employment change: upgraded from +3.7K to +7.8K
- Jobless rate: steady at 5.4% as expected
- Labor force participation rate: 65.5% vs. steady at 65.2% expected
In my Event Preview for Australia’s November jobs report, I pointed out that the available leading indicators were mixed but seem to lean more towards a possible slowdown in jobs growth. which is contrary to the consensus that jobs growth will pick up.
However, I concluded that probability was skewed more towards an upside surprise for jobs growth since jobs growth usually accelerates between the months of October and November and because economists are too pessimistic with their guesstimates, resulting in more upside surprises.
And, well, it looks like the historical tendencies held sway since the Australian economy generated 61.6K jobs in November, which is a significant upside surprise form the forecast range of +18.1K to +19.0K.
In addition, November’s reading is a strong acceleration from October’s upwardly revised +7.8K reading (+3.7K originally), which again confirmed the historical tendency for stronger jobs growth.
A closer look at the November jobs report also shows that the strong jobs growth was driven mainly by the 41.9K increease in full-time jobs, which is the biggest gain in full-time jobs in five months and marks the fifth consecutive month of growth in full-time jobs to boot.
Moreover, the jobless rate held steady at 5.4%, which is the shared lowest since February 2013, even though the labor force participation rate jumped from 65.2% to a 70-month high of 65.5%.
Overall, Australia’s November jobs report was pretty great, which is why the Aussie reacted by jumping higher across the board. Follow-through buying was limited, though, since gold prices were in decline at the time.
What is the market expecting this time?
- Employment change: +13.0K to +15.0K expected vs. +61.6K previous
- Jobless rate: steady at 5.4% expected
- Labor force participation rate: 65.4% expected vs. 65.5% previous
Economists don’t really have a consensus figure for jobs growth. However, there is a consensus that jobs growth slowed in December since most forecasts for net employment change in December generally fall between +13.0K to +15.0K.
As for the other labor indicators, the jobless rate is expected to hold at steady at 5.4%. The labor force participation rate, meanwhile, is expected to ease from the multi-year high of 65.5% to 65.4%.
Let’s now take a look as the available leading indicators:
- The employment sub-index AIG’s performance of manufacturing index (PMI) dropped from 54.9 to 52.9, indicating weaker employment growth in the manufacturing sector.
- The employment sub-index of AIG’s performance of construction index (PCI) also eased in December, sliding from 55.3 to 54.9.
- As for the employment sub-index of AIG’s performance of services index (PSI), that actually improved from 52.1 to 52.7.
Overall, the leading indicators are mixed and it’s hard to tell how the Australian labor market fared in December since there’s a chance that stronger jobs growth in the services sector may have offset weaker jobs growth in the construction and manufacturing sectors. However, the opposite may also hold true. And sadly, National Australia Bank (NAB) hasn’t released its business survey yet, so we don’t really have a tie-breaker of sorts.
Anyhow, let’s see if historical tendencies offer a clearer picture. And, well, the consensus that jobs growth slowed in December appears to be well-supported by historical data.
As to how economists historically fared with their guesstimates, there seems to be more upside surprises than downside surprises, so it looks like economists tend to be too pessimistic with their forecasts.
To summarize, the available leading indicators are mixed and could go either way. However, the consensus that jobs growth slowed in December appears to have a historical basis.
Even so, economist have a historical tendency to be too pessimistic with their guesstimates, resulting in more upside surprises, so probability likely tilts more towards an upside surprise for jobs growth. As usual, however, just keep in mind that we’re playing with probabilities here, so there’s no guarantee that the historical trend will hold.
And also as usual, the Aussie usually has a bullish knee-jerk reaction if net employment change is better-than-expected. And the Aussie’s reaction to the previous jobs report is a classic example of this. Conversely, a miss generally triggers a quick Aussie selloff.
As for follow-through buying (or selling), that usually depends on the other aspects of the jobs report, but full-time employment is usually (but not always) the one that gets the spotlight.
However, the Aussie also takes directional cues from gold, so you may want to keep an eye on gold prices as well, especially if you’re planning a longer-term trade based on the jobs report. The Aussie’e lack of follow-through buying in the wake of the previous jobs report is an example of how gold affects the Aussie’s price action.