G’day, forex mates! Australia is scheduled to release its January jobs report tomorrow at 12:30 am GMT, which will likely give the Aussie a volatility injection.
So, if you need a quick recap on what happened last time, as well as a condensed preview of what’s expected this time around, then today’s write-up is just for you.
What happened last time?
- December employment change: +34.7K vs. +13.0K to +15.0K expected
- November employment change: upgraded from +61.6K to +63.6K
- Jobless rate: 5.5% vs. steady at 5.4% expected
- Labor force participation rate: 65.7% vs. 65.4% expected, 65.5% previous
If y’all can still recall, I noted in my previous Australian jobs report preview that the available leading indicators were mixed.
However, I also pointed out that economist have a historical tendency to be too pessimistic with their guesstimates, resulting in more upside surprises.
As such, I concluded that probability likely tilts more towards an upside surprise for jobs growth.
And, well, we did see an upside surprise since employment grew by 34.7K in December, which is more than the general forecast range of between 13K to 15K jobs.
Moreover, jobs growth in November was upgraded from 61.6K to 63.6K.
The jobless rate did deteriorate from 5.4% to 5.5%, despite the stronger-than-expected jobs growth.
However, this had more to do with the labor force participation rate improving from 65.5% to 65.7%, which is the best reading since January 2011.
The only real disappointment with the jobs report was the much weaker increase in full-time jobs (15.1K vs. 43.6K previous). Even so, this still marks the fifth consecutive month of gains.
Overall, Australia’s December jobs report was actually pretty good, which is why the Aussie jumped higher as an initial reaction. However, bears quickly rushed in to fade the would-be rally. And from the looks of it, the reason why the bears attacked was due to the falling gold prices at the time. There was notable follow-through buying, though, since the Aussie’s price action began to tilt broadly to the upside after the bears attacked.
What is the market expecting this time?
- Employment change: +15.0K expected vs. +34.7K previous
- Jobless rate: steady at 5.5% expected
- Labor force participation rate: 65.6% expected vs. 65.7% previous
Most economists forecast that the Australian economy only generated around 15.0K jobs in January, slowing down from the previous month’s +34.7K.
Economists also think that the labor force participation rate will ease a bit from 65.7% to 65.6%. Although economists also generally think that this won’t affect the jobless rate since the jobless rate is expected to hold steady at 5.5%.
Let’s move on to what the available leading indicators have to say:
- The employment sub-index AIG’s performance of manufacturing index (PMI) eased further from 52.9 to 52.1, which means that employment growth in the manufacturing sector continued to weaken.
- The employment sub-index of AIG’s performance of construction index (PCI) improved by 3.3 index points to 58.0.
- As for the employment sub-index of AIG’s performance of services index (PSI), that jumped by 5.4 index points to 58.1, which means that employment grew at a faster pace in the labor-intensive service sector.
- The employment sub-index of the NAB monthly business survey, meanwhile, held steady at 6 index points, implying that jobs growth in January maintained December’s pace.
Overall, the leading indicators seem to point to stronger jobs growth in January, or in the case of NAB’s employment sub-index, the same pace as in December, which are both contrary to the consensus that jobs growth slowed.
Okay, what about historical tendencies then? Well, it looks like jobs growth does seem to accelerate in January. However, that tendency didn’t hold during the last three years.
As to how economists fared with their guesstimates, they apparently tend to be too pessimistic since there are more upside surprises than downside surprises.
In summary, the available leading indicators point to a sustained or stronger pace of jobs growth in January. This contradict the consensus that jobs growth slowed in January.
However, historical data leans more in support of the available leading indicators. Although it should be stressed that the past three years didn’t really follow the historical trend.
Also, have historically been too pessimistic, resulting in more upside surprises. Given all that, probably therefore seems skewed more towards an upside surprise for jobs growth.
But just remember that we’re playing with probabilities, so the risk for a downside surprise is still there. In fact, there was a string of downside surprises from 2014 to 2016.
Anyhow, just keep in mind that market players usually react based on how the reading for jobs growth compares with the consensus reading, with a better-than-expected reading resulting in bullish reaction for the Aussie and vice versa.
Oh, do note that the Aussie’s hasn’t been tracking gold prices that closely lately, but it’s still worth paying attention to gold prices, especially if you’re trying to gauge if there will be follow-through buying or selling.