Unemployment steady, labour market remains stable: HSBC's Paul Bloxham

GUEST OBSERVER

Today's Australian jobs numbers surprised a little to the downside, with a drop of -5k jobs in September (market had +10k), while the unemployment rate was steady and in line with expectations at 6.2%.

The unemployment rate has now been broadly steady between 6.0-6.4% for the past 16 months. The official labour market numbers are broadly in line with other surveys, including job advertisements, vacancies and hiring intentions, which have all shown a gradual improvement in labour demand since their trough in early 2014.

This gradual improvement is consistent with the RBA's own forecasts. We expect the RBA to be on hold in coming quarters.

Facts

Employment fell by -5.1k in September (market and HSBC expected +10k). Over the past six months, employment growth has averaged +15k a month. Annual employment growth was unchanged from August, at 2.0% y-o-y.

The participation rate fell by 0.1ppt to 64.9%. The recent trough in participation was 64.5% in October 2014.

The unemployment rate was unchanged at 6.2%, in line with expectations and also exactly where it was one year ago. The unemployment rate has been between 6.0% and 6.4% for the past 16 months, during which time the trend unemployment rate has been steady at 6.1-6.2%.

Total hours worked lifted by 0.7% in September, with annual growth rising to 2.5% y-o-y. This is the fastest pace of growth since the year to October 2011.

Implications

Although the monthly jobs print was weaker than expected (-5k), the unemployment rate is still continuing to track sideways, rather than rise. Looking through the month-to-month volatility, these numbers suggest continuation of the status quo. The labour market has stabilised but there is not quite enough momentum to get the unemployment rate to fall.

Given recent measurement challenges in the official numbers it is also important to put them in the context of the full range of jobs indicators (see charts below). These measures are showing a broad trend of gradual improvement in labour market conditions.

Job advertisements rose in September, continuing the upward trend that has been apparent since early 2014. The ABS quarterly job vacancies survey shows a similar trend and continued to rise in Q3. Both of these surveys are showing gradual improvement, although the pace is slower than in previous cycles.

The consumer sentiment survey has also recently shown a sharp fall in households' expectations of unemployment. This suggests that the labour market is not a key constraint on households' spending decisions. 

From the RBA's perspective, today's numbers are unlikely to be surprising. Along with other indicators, they confirm that the labour market is stabilising, consistent with the RBA's own forecast for a steady unemployment rate in coming quarters.