G’day, forex mates! The Australian Bureau of Statistics (ABS) will be releasing Australia’s latest jobs report tomorrow at 1:30 am GMT. And that means that the Aussie will likely get a volatility injection. That also means it’s time for another edition of my Event Preview!
What happened last time?
- July employment change: -3.9K vs. +15.0K expected
- June employment change: upgraded from +50.9K to +58.2K
- Jobless rate: 5.3% vs. steady at 5.4% expected
- Labor force participation rate: 65.5% vs. steady at 65.7% expected
Australia’s July jobs report was mixed. You see, the jobs report revealed that the Australian economy lost 3.9K jobs in July, which is contrary to expectations for a 15.0K gain. Moreover, the negative jobs growth was the first since February of this year.
However, a closer look at the details show that full-time employment grew by 19.3K and that the net loss in jobs was actually due to the loss of 23.2K part-time jobs. Also, the reading for June was revised higher from +50.9K to +58.2K.
Despite the net loss in jobs, the jobless rate improved from 5.4% to 5.3%. However the lower jobless rate was actually due to the labor force participation rate falling from 65.7% to 65.5%, which implies that blokes and sheilas were getting discouraged and leaving the labor force. And that’s a bad sign for the economy.
Anyhow, the jobs report was mixed on the surface and the details also painted a somewhat mixed picture.
Jobs growth failed to meet expectations, however, so the Aussie’s initial reaction was to dive lower across the board.
However, bulls quickly launched a counter-attack, thanks to easing trade-related concerns and a surging Chinese yuan at the time since Chinese Vice Minister of Commerce Wang Shouwen’s announced shortly after the jobs report was released that China will meet with U.S. representatives in Washington.
Of course, we also now know that those trade talks didn’t really pan out. In fact, attention has shifted back towards the ongoing trade war between the U.S. and China.
What is the market expecting this time?
- Employment change: +18.0K expected vs. -3.9K previous
- Jobless rate: expected to hold steady at 5.3%
- Labor force participation rate: 65.6% expected vs. 65.5% previous
The consensus among economists is that jobs growth recovered in August after the losses incurred back in July. And while there’s no true consensus reading, most forecasts generally fall at or around a net gain of 18.0K jobs.
Most economists also think that the labor force participation rate will recover by ticking higher from 65.5% to 65.6%. And there’s also a consensus that jobs growth will be able to keep up with the higher participation rate since the jobless rate is expected to hold steady at 5.3%.
So, what do the available leading indicators have to say?
- The employment sub-index of AIG’s performance of manufacturing index (PMI) jumped by 3.0 index points to 53.3.
- The employment sub-index of AIG’s performance of construction index (PCI) fell by 1.7 index points to 49.1. The reading is below the 50.0 stagnant level, so jobs growth in the construction sector actually contracted.
- Meanwhile, the employment sub-index of AIG’s performance of services index (PSI) eased further by 2.8 index points to 50.6, so jobs growth continued to decelerate in the labor-intensive service sector and was even almost stagnant.
- As for the employment sub-index of the NAB monthly business survey, that held steady at 10 index points.
How about historical tendencies? Do they offer additional insights?
Unfortunately, there is no clear historical pattern when comparing jobs growth in July and August. It’s worth pointing out that the readings in 5 of the last 11 years were negative.
Economists also don’t have any apparent tendencies for their guesstimates. However, all the instances of downside surprises is when the actual reading came in negative. If we exclude those, then market analysts have a tendency to undershoot their guesstimates, resulting in more upside surprises.
In summary, the available leading indicators are mixed since AIG is pointing to weak or negative jobs growth in August, but NAB is pointing to steady jobs growth.
However, it’s worth highlighting that AIG was right last time around since AIG was also pointing to weak jobs growth in July. NAB, meanwhile, found that jobs growth accelerated back in July. And we now know that jobs growth was actually negative, so AIG’s findings appear to have more weight.
AIG’s findings go against the consensus that jobs growth rebounded in August, though.
As for historical trends, there are no clear historical tendencies. But as noted earlier, jobs growth in August was negative in 5 of the last 11 years, which opens the possibility for another negative reading, which is supported by AIG’s findings.
Moreover, economists have been blindsided in all 5 cases where the August reading came in negative. But if we exclude those 5 instances of negative readings, then economists actually have a tendency to undershoot their guesstimates, resulting in upside surprises.
Overall, however, I think probability is skewed more towards a downside surprise. But as always, just remember that we’re playing with probabilities here, so the risk for an upside surprise is still there.
And also as always, do makes sure to keep an eye on overall risk sentiment and gold prices, as well as the Chinese yuan. Be particularly keen on any trade-related news since the Aussie has been rather sensitive to that lately, especially if it involves the ongoing trade war between the U.S. and China.