G’day, forex mates! If you’re hunting for a potential catalyst for the Aussie, then heads up since Australia will be releasing its jobs report tomorrow at 12:30 am GMT.
And 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?
- Aug. employment change: +44.0K vs. +18.0K expected
- July employment change: downgraded from -3.9K to -4.3K
- Jobless rate: steady at 5.3% as expected
- Aug. labor force participation rate: 65.7% vs. 65.6% expected
- July labor force participation rate: upgraded from 65.5% to 65.6%
Australia’s August jobs report was pretty good overall, which caused the Aussie to jump higher pretty much across the board. However, gold prices and the yuan were falling at the time, so the Aussie’s gains were only limited.
As for specifics, Australia’s August jobs report showed that net employment grew by 44.0K, which is more than double the expected 18.0K increase.
The previous reading was downgraded slightly from -3.9K to -4.3K, but the downgrade still pales in comparison to the higher-than-expected reading for August.
Better still, jobs growth was driven mainly by the 33.7K increase in full-time employment, which marks the third consecutive month of increases in full-time jobs. Part-time employment, meanwhile, recovered by 10.3K after shedding 23.4K jobs previously.
And the good news don’t end there since jobs growth was apparently strong enough to keep up with the influx of new and returning workers since the labor force participation rate increased from 65.6% to 65.7%, but the jobless rate held steady at 5.3% instead of deteriorating.
What is expected this time?
- Employment change: +15.2K expected vs. +44.0K previous
- Jobless rate: expected to hold steady at 5.3%
- Labor force participation rate: expected to hold steady at 65.7%
Most economists think that around 15.2K jobs were created in September. And since 44.0K jobs were created in August, there’s therefore a consensus that jobs growth slowed down.
Despite the slower jobs growth, the general consensus is that jobs growth will be enough to keep up with working age population growth since the jobless rate and labor force participation rate are expected to hold steady at 5.3% and 65.7% respectively.
So, what do the available leading indicators have to say:
- The employment sub-index of AIG’s performance of manufacturing index (PMI) increased by 4.8 index points to 58.1.
- The employment sub-index of AIG’s performance of construction index (PCI) eased by 2.2 index points to 46.9. The reading is below the 50.0 stagnant level, so payroll numbers in the construction sector contracted.
- As for the employment sub-index of AIG’s performance of services index (PSI), that fell slightly from 50.6 to 49.8, so jobs growth was almost stagnant.
- The employment sub-index of the NAB monthly business survey, meanwhile, increased from 9 index points to 12.
How about historical tendencies? Do they offer additional insights?
Jobs growth in September has historically been better compared to jobs growth in August. However, that historical trend hasn’t been holding up too well in the last five years.
Economists also have a tendency to undershoot their guesstimates, resulting in more upside surprises over the year. However, that historical tendency hasn’t been holding up too well as well in recent years.
In summary, our leading indicators are mixed since AIG is pointing a slowdown (or even a contraction) in jobs growth, while NAB is pointing to stronger jobs growth.
AIG’s finding are more in-line with consensus since most economists forecast that only 15.2K jobs were created in September (+44.0K previous).
As for historical trends, well, they’re not really very helpful. You see, there are more instances where the readings for net employment change in September were better compared to August. However, that historical tendency has failed to hold up in the last five years.
The same can also be said for the guesstimates of economists, so we can’t really conclude that probability is skewed more towards a potential upside surprise since there have been 4 downside surprises in the last 5 years.
Anyhow, just keep in mind that the Aussie usually has an initial reaction depending on how the reading for net employment change turns out, with a better-than-expected figure usually triggering a quick Aussie rally, while a worse-than-expected reading usually results in a quick Aussie selloff.
As for follow-through buying (or selling), that’s usually determined by the other details of the jobs report, with full-time employment generally in focus.
Do keep in mind, though, that the Aussie also takes directional cues from gold and the Chinese yuan, so it would be wise to keep an eye on those as well. And if you didn’t know, you can keep an eye on those in our Live Market Rates.