G’day, forex mates! Are you looking for a potential catalyst for the Aussie? If you are, then just know that we’ll be getting Australia’s jobs report tomorrow at 1:30 am GMT.
And if you’re planning to trade that top-tier event and you need a quick rundown on what happened last time and what’s expected this time, then today’s Event Preview is just for you.
What happened last time?
- June employment change: +50.9K vs. +16.5K expected
- May employment change: upgraded from +12.0K to +13.4K
- Jobless rate: unchanged at 5.4%
- Labor force participation rate: 65.7% vs. steady at 65.5% expected
Australia’s June jobs report revealed that the employment situation in Australia was pretty good overall.
To begin with, the Australian economy generated 50.9K jobs, which greatly exceeds the +16.5K consensus and is the best reading in seven months to boot.
Even better, jobs growth was driven mainly by the 41.2K increase in full-time employment, which is also the strongest increase in seven months and more than makes up for the 19.9K full-time jobs lost in May.
And as icing on the cake, the reading for May was also revised higher from +13.4K to +12.0K.
Despite the strong jobs growth in June, the jobless rate only held steady at 5.4%.
However, a closer look at the details shows that the labor force participation rate actually climbed from 65.5% to a four-month high of 65.7%. And that means that the Australian economy was actually able to handle the influx of new and returning workers, so the steady jobless rate is actually pretty good.
Overall, Australia’s June jobs report was pretty good, which is why the Aussie caught a bid across the board when the report was released.
There was little follow-through buying, though, very likely because gold prices were falling, the Greenback was moving higher, and risk aversion was making a comeback at the time.
What is the market expecting this time?
- Employment change: +15.3K expected vs. +50.9K previous
- Jobless rate: expected to hold steady at 5.4%
- Labor force participation rate: expected to hold steady at 65.7%
Most economists think that around 15.3K jobs were generated in July. And since 50.9K jobs were created in June, there’s therefore a consensus that jobs growth slowed in July.
Despite the slower jobs growth, most economists think that the jobless rate will hold steady at 5.4%, even though the labor force participation rate is also expected to hold steady at 65.7%.
So, what do the available leading indicators have to say?
- The employment sub-index of AIG’s performance of manufacturing index (PMI) dropped hard by 7.8 index points to 50.3. The reading is still above the 50.0 stagnant level, so employment in the manufacturing sector still grew in July, albeit at a much slower pace compared to June.
- The employment sub-index of AIG’s performance of construction index (PCI) rose by 2.6 index points to 50.8.
- Meanwhile, the employment sub-index of AIG’s performance of services index (PSI) slumped by 10.5 index points to 53.4, so jobs growth also decelerated in the labor-intensive service sector.
- As for the employment sub-index of the NAB monthly business survey, that improved from 5 index points to 10 points. And according to NAB, the reading is “consistent with jobs growth [of] around 23k per month.”
How about historical tendencies? Do they offer additional insights?
Comparing jobs growth in June and July doesn’t really yield any strong historical trends, although it’s worth noting that jobs growth in July has been stronger in the last three years.
However, economists do seem to have a tendency to be a bit pessimistic when it comes to their guesstimates since there are more upside surprises over the years.
Also, the smoothing effect of seasonal adjustments mean that the June reading usually gets downgraded (more often than not).
As an interesting side note, historical data also show that if full-time employment in June was strong, then full-time employment in July tends to weaken or even turn negative. Conversely, a weak or negative reading in June usually means a better (and positive) reading in July.
To sum it all up, the available leading indicators are mixed since NAB is pointing to an acceleration in jobs growth but AIG found that jobs growth slowed in July.
The consensus view is that jobs growth slowed in July, though, so AIG’s finding are more in-line with consensus.
With that said, history does show that economists tend to be too pessimistic when it comes to their guesstimates, resulting in more upside surprises. And that skews probability more towards a possible upside surprise.
But as always, just remember that we’re playing with probabilities here, so the risk for a downside surprise is still there.
Also, keep in mind what I wrote about the tendency for full-time employment to print a weak or negative number in July if the reading for June is good. After all, 41.2K full-time jobs were generated back in June. So even if the headline reading for jobs growth comes in better-than-expected, there’s a good chance that full-time employment may disappoint and cause the Aussie to weaken.
And the Aussie’s reaction to Australia’s July 2017 jobs report is an example of this since overall jobs growth was stronger-than-expected but full-time employment fell, which prompted the Aussie to slide lower as a knee-jerk reaction. However, gold and iron ore prices were on the rise at the time, so the Aussie’s losses were only limited.
And on that note, makes sure to keep an eye on overall risk sentiment and gold prices as well. And if you didn’t know, you can check slightly delayed gold prices in our Live Market Rates. Or if you prefer real-time data, you can go here.