G’day, forex mates! If you’re hunting for a potential catalyst for the Aussie, then huddle up since the Australian Bureau of Statistics (ABS) will be releasing Australia’s jobs report tomorrow at 1:30 am GMT. And I just so happen to have an Event Preview for it.
What happened last time?
- April employment change: +22.6K vs. +20.3K expected
- March employment change: downgraded from +4.9K to -0.7K
- Jobless rate: 5.6% vs. steady at 5.5% expected
- Labor force participation rate: 65.6% vs. steady at 65.5% expected
In my event preview for Australia’s April jobs report, I noted that the available leading indicators supported the consensus that jobs growth picked up the pace in April.
Additionally, I also pointed out that economists tend to be too pessimistic in their April guesstimates for both employment change and the jobless rate, which skews probability more towards an upside surprise for both.
Well, the leading indicators were right since and the historical trend held, at least with regard to employment change, since Australia’s April jobs report revealed that the Australian economy generated 22.6K jobs in April, more than the +20.3K expected.
Even better, jobs growth was driven by the 32.7K increase in full-time jobs, which was able to more than offset the loss of 25.1K full-time jobs in March.
On a more downbeat note, net employment change in March was revised lower to reflect a loss of 0.7K jobs (+4.9K originally).
Another downbeat note (on the surface) is that the jobless rate ticked higher from 5.5% to 5.6% despite the jobs growth.
However, that was due to the labor force participation rate ticking higher from 65.5% to 65.6%, which means that more Australians were encouraged to join or rejoin the labor force. And that’s a good thing.
To conclude, Australia’s April jobs report was mixed on the surface, so the Aussie tossed and turned when the report was released. The jobs report was positive overall, however, which is why the Aussie was bid higher across the board. Gold was retreating at the time, though, so follow-through buying was limited and some Aussie pairs eventually began to tilt to the downside.
What is the market expecting this time?
- Employment change: +19.0K expected vs. +22.6K previous
- Jobless rate: 5.5% expected vs. 5.6% previous
- Labor force participation rate: expected to hold steady at 65.6%
Most economists forecast that only around 19.0K jobs were generated in May (+22.6K previous). There’s therefore a consensus that jobs growth slowed in May.
Also, most economists think that the slightly weaker jobs growth would be enought to push the jobless rate back down from 5.6% to 5.5%, so long as the labor force participation rate holds steady at 65.6%.
So, what do the available leading indicators have to say?
- The employment sub-index of AIG’s performance of manufacturing index (PMI) was unchanged at 56.1, which implies that employment in May grew at the same pace as in April.
- The employment sub-index of AIG’s performance of construction index (PCI) slumped from 59.5 to 51.5. Jobs growth therefore slowed in the construction sector.
- Meanwhile, the employment sub-index of AIG’s performance of services index (PSI) improved slightly from 58.6 to 59.2, so overall jobs growth accelerated in the labor-intensive service sector.
- As for the employment sub-index of the NAB monthly business survey, that fell from 13 index points to just 8 points in May. Despite the weaker reading, NAB noted that “Based on historical patterns this is consistent with a solid rate of jobs growth around 21K per month.”
How about historical tendencies? Do they offer additional insights?
Well, there’s no clear tendency when comparing jobs growth in April and May.
However, economists clearly are a pessimistic bunch since they tend to undershoot their guesstimates, resulting in more upside surprises.
Also, the smoothing effect of seasonal adjustments mean that the April reading usually gets downgraded.
As for the jobless rate, that usually improves in May, which supports consensus.
Even so, economists still tend to be too conservative since there are lots of upside surprises.
In summary, the leading indicators are hinting that jobs growth in May maintained the pace in April or was slower, which supports consensus that jobs growth slowed a bit.
However, historical data show that economists are too conservative with their guesstimates for the jobless rate and jobs growth, resulting in more upside surprises for both.
And that skews probability more towards an upside surprise for both the jobless rate and jobs growth.
But as always, just remember that we’re playing with probabilities here, so the risk for a downside surprise is still there.
Also, just remember that follow-through buying or selling usually depends on whether or not jobs growth was driven by full-time employment.
However, also keep in mind that gold price and risk sentiment also dictate the Aussie’s price action. And the Aussie’s price action in the wake of the previous jobs report is an example of when gold prices helped to blunt the Aussie’s rally.