Jobs numbers were weaker than expected: HSBC's Paul Bloxham
GUEST OBSERVER
Today's jobs numbers were weaker than expected, with broadly flat jobs in February (market had +14k).
However, at the same time, the unemployment rate outperformed by falling to 5.8 percent (market had 6.0 percent), due to an unexpected sharp decline in the participation rate. Measurement issues have pervaded this survey making it difficult to get a clear reading. This is the third consecutive month of weak jobs growth, but this partly reflects pay-back for very strong numbers late last year.
Cutting through the noise, the trend measures show the unemployment rate is still below its peak, suggesting gradual labour market improvement. However, unemployment is still well above its full employment level, which is likely to continue to weigh on wages growth and domestic inflation, leaving the RBA with scope to cut further.
Facts
Employment was broadly flat (up by just 300 jobs) in February (market expected +13.5k, HSBC expected +10k). Over the past six months, employment growth has averaged +20k a month. Annual employment growth has eased to 2.1 percent, down from a peak of 2.9 percent in November.
The participation rate fell by 0.3ppts to 64.9 percent, the lowest rate since June 2015.
Because of the drop in participation, the unemployment rate fell from 6.0 percent to 5.8 percent (the market and HSBC expected 6.0 percent).
- The employment-to-population ratio fell from 61.2 percent to 61.1 percent, the lowest level since October 2015.
Total hours worked fell by 0.1 percent m-o-m in seasonally-adjusted terms, and were up 2.2 percent y-o-y. Trend growth in hours worked slowed from 2.6 percent to 2.4 percent y-o-y.
Implications
Australia's official labour force survey is still suffering from measurement issues that make it complicated to interpret the results. Jobs were broadly flat in February, following falls in the previous two months, but this was after very strong growth in employment in October and November last year. A large part of the recent weakness appears to be 'payback' for the over-stated strength last year. However, it is not easy to separate the signal from the noise.
One way to do this is to look at the trend measures within the official survey. These are showing gradual improvement in the labour market. The trend measure of the unemployment rate is at 5.8 percent, down from a peak of 6.3 percent in late 2014.
Another way to do this is to look at the collection of other indicators of the labour market, including job advertisements, job vacancies and hiring intentions in the business surveys. These are showing a more modest improvement in the labour market than is implied by the official numbers (see Figure 4 below).
The other key issue is that although the range of indicators suggests that there has been a trend improvement in the labour market, the pick-up has not been enough to absorb sufficient spare capacity to put upward pressure on wages growth and domestic inflation.
Combine this with underlying inflation that is already at the bottom edge of the target band, weak global inflation and a climbing AUD, and it is likely that inflation will remain low. We expect underlying inflation to fall below the bottom edge of the RBA's 2-3 percent target band in H1 2016. Our central case has the RBA easing by a further 25bps around the middle of this year.
Paul Bloxham is chief economist (ANZ) for HSBC . Daniel Smith is economist. They can be contacted here.
