Month: October 2013

Employment in Sept in a few charts

The employment situation in September remained weak and there were even some signs of deterioration.

This month, growth in FT employment has continued to slow, yet FT hours have grown. Growth in total unemployed persons continues to slow down (but total numbers remain high) and there is growth in PT employed persons and PT hours. Put this way, these points make it sound like the labour market is set for recovery. Some of the commentary in the media has taken the angle that rising hours is a sign that improvement in the labour market is underway. I wanted to prove or disprove this theory and dug deeper into the hours worked and employment data. The source of any ‘strength’ can easily be narrowed down to one or two states only – QLD and to a much lesser degree WA. The employment situation in the remaining states is weak and I would argue, worsening, in some of the larger states such as NSW and VIC.

I’ve started using trend data to analyse employment. This data series that can be used to look at month on month changes, as well as the usual year on year. It also removes the monthly volatility from the survey results. See explanation from the ABS here.

Summary of Employment in Australia

Source: ABS

The annual growth in employment of 106k persons is very low by historical standards – the ten year average (excluding Sept 2013) is +224k growth. The good news – the growth in the number of unemployed persons is slowing down as well – last month the annual growth figure was +70k, this month +59k versus the same time last year. But note that total unemployed persons are still growing as a group.

The overall growth figure in total employed persons disguises the main issue for our economy at the moment;

Growth in PT employed now accounts for 93% of the annual employment growth. Growth in FT employment is poor, and deteriorating, on every time measure.

Source: ABS 

Clearly the rate of decline in FT jobs growth is not as pronounced as during the GFC (slope is not as steep), but its approaching zero growth nonetheless and showing no signs of abating.

This is difficult to reconcile with the growth in FT hours worked. In the September survey, PT hours worked grew by +3.85% and FT hours grew by +1.15%. Some believe that growing hours are a sign of near-term improvement:

Source: ABS 

Historically, growth in PT and FT hours diverge during a recession or lower growth periods. It’s easy to see this divergence line up in the chart above with the recessions/slow-downs of 1981/2, 1991/2, 2001 & 2008 (green circled areas). It seems logical that during times of weaker demand, the economy shifts to more PT employment. But we are currently in a situation where FT hours are growing too and you could argue that this is consistent with the economy currently enjoying a small blip in demand possibly as a result of numerous interest rate cuts as well as a lower $A.

But is it a sign that the labour market is about to see an improvement? Just to be sure, I dug a little deeper into the state by state data for hours worked – unfortunately the state by state data isn’t broken down by FT/PT. But this data still says something interesting;

Source: ABS 

Annually, growth in hours has been driven predominantly by QLD. Annual growth in NSW, VIC & WA is below the National average.

The issue is that the shorter time frames (red & green bars) point to a slow-down in growth of working hours compared to the annual rate of growth. The exception is SA, TAS & ACT where hours have been declining and are now declining at a lower rate.

In the last 3 months and on a month on month basis, hours worked has deteriorated such that only QLD, WA and NT recorded any growth in aggregate working hours.

As such, the current growth in aggregate hours worked is not an accurate reflection of the situation in all states and possibly only points to continued employment growth in QLD, WA and/or NT. The slowing of the decline in SA, TAS and ACT could be a positive trend. We’ll have to wait and see. But for the moment, these states aren’t contributing to growth in hours worked.

Looking at the FT v PT employment situation on a state by state basis provides some further insight into this issue as well.

The next two charts compare FT and PT employment growth annually versus the shorter time period of the last 3 months.

Source: ABS 

VERSUS that same picture over the last 3 months;

Source: ABS

  • National – Annual FT employment growth has gone from +7.3k persons to a decline in FT employed persons in Sept v July 2013 of -3.79k persons.
  • NSW – the annual decline in FT employed persons has accelerated over the last 3 months – FT employed persons has declined by 15.91k persons in Sept v Jul 2013. Growth in total unemployed remains on its recent high, averaging +26k each month for the last 4 months
  • VIC – the annual growth in total employed persons is all PT employment and in the last 3 months even PT employed persons has declined. Growth in unemployment is still high, but growing at a decreasing rate now
  • QLD – the only state to record decent growth in FT employed persons over the year and over the last 3 months. But even PT employed persons has gone backwards in the last 3 months
  • SA & TAS are both recording annual declines in both FT & PT employed persons and total unemployed persons continues to grow
  • WA is no longer the powerhouse of employment growth, but is at least registering some growth in FT employed persons. Growth in total unemployed persons is slowing down (it’s still growing, but at a decreasing rate)

To balance out the picture, growth in total unemployed persons is slowing down. But it’s a case of still growing, but growing at a decreasing rate – only in QLD and ACT has growth slowed to zero.

Source: ABS 

As mentioned in the previous post, the leading indicators are mostly all pointing to more of the same.

Employment continues to be poor in August

In the past, I have used the word ‘lacklustre’ to describe the labour market in Australia and this remains a fitting description.

Employment growth is well below historical averages and, recently, month on month employment change has gone negative. After digging further into ‘total employment’ growth, it’s apparent that most of the growth in total employed persons are those PT employed, not FT employed. At some point, growth in underemployment is likely to impact household income and spending. The big concern is the deterioration in FT job growth in the two key states of NSW & VIC – this is a new trend uncovered. Unemployment figures have continued to move higher and the total number of unemployed persons has now exceeded GFC highs. But one bright spot is that the rate of growth in total people unemployed has started to slow. The forward indicators mostly all suggest more of the same – a weak labour market. Stronger business confidence and slight growth in job ads may be early signs of improvement in the future.

Employment Summary (trend data)

In the month of August, total employed FT & PT all declined month on month:

Source: ABS, trend data

At the same time total unemployed persons increased by over 4k persons. Not a great combination.

The lacklustre state of the employment market is clear when you look back over the last 6 and 12 months;

Growth in PT jobs has far exceeded growth in FT jobs over both 6 and 12 month time periods

On a six month basis, the growth in total unemployed persons (+40.4k persons) has far exceeded the growth in total employed persons (+22.9k persons) 

These are not indicators of a strong employment market.

Looking back over the year (Aug 13 v Aug 12), total employed persons grew by 118k persons. That sounds like a fairly reasonable number, but it is far below the ten year average of growth in total employed persons of +224k.

One positive is that there has at least been growth in PT employment. On an annual and six month basis, growth in PT jobs has helped to pick up some of the slack. This ‘swapping’ of FT for PT employment is not unusual during a slowdown in aggregate demand – which is what we have been experiencing in Australia.

Consider the chart below – the ratio of FT to PT jobs in Australia has been falling consistently since the late 70’s. Part of that is the addition of ‘new’ jobs PT in nature and more females entering the workforce in those earlier years. But it also means that FT jobs have not been growing at the same rate as PT jobs over that time. In the late 70’s there were 5.6 FT employed persons for every PT employed person – that ratio is now 2.3:1.

Source: ABS

Looking at the same chart, but on a shorter time period (last 12 years), it’s easier to see that during the 2000’s, that the proportion of FT to PT jobs stabilised at roughly 2.5 FT employed for every one PT employed person;

Source: ABS

That ratio dropped during the GFC and has now reached new lows of 2.3 FT employed persons for every PT employed person. In other words, some FT hours were cut back to PT hours during the GFC and haven’t reverted back to pre-GFC levels. So whilst it is good that at least there is some employment growth, at some point, this growth in PT employment will have implications for household income.

Total Unemployed

The other side of the equation is total unemployed persons. There is unfortunately no good news here either – unemployment has been trending up since early 2011.

Source: ABS

Growth in unemployment spiked during the GFC in 2008/09 and rebounded, but remained at elevated levels (compared to pre GFC). The decline in total unemployed persons was likely in part to various stimulus measures. Consistent growth in unemployment since early 2011 has now resulted in a total number of unemployed persons higher than that of during the GFC.

If there is one bright spot here it’s that the rate of growth in total unemployed has started to slow down (the red line). Whilst that rate of growth is slowing, the last four months still saw +70k persons added each month to total unemployed. A slow-down could still be a precursor to a change in trend.

Hours Worked

In the month of August (v same month LY), PT hours grew by +3.3% and FT hours grew by +1.4%. Commentary in the media has suggested that rising hours is a precursor to rising employment in the next few months.

We’re currently in a situation where PT employment is growing faster than FT employment (+2.8% v +0.3% yr on yr), so it makes sense that PT hours are growing faster than FT hours.

Source: ABS

As I’ve mentioned in previous posts, there appears to be a negative correlation between FT & PT hours during slowdowns. The green circled data are the last four (4) downturns in Australia. In all of these cases, PT hours grew and FT hours declined during these downturns (not all were recessions). For a while now, I’ve been following this dataset wondering if this same trend is now playing out. But FT hours are now starting to grow faster. Does the growth in FT hours indicate future growth in FT employment? This next chart may help to answer that question – it compares the change in FT employed persons with the change in FT hours;

Source: ABS

Since 1978, both FT hours and total FT employed persons have grown at the same time. That makes sense. So it’s unusual to see FT hours starting to grow and FT employment slowing down. There are several possible explanations;

  1. Employers have cut back FT employees (too much) on the expectations of weak business conditions, resulting in existing FT employees taking on a greater workload (hours). You only need to view the NAB’s Business Confidence report to see how poor business confidence has been (but saw significant improvement in the last 2 months). Or,
  2. Demand is picking up. Existing FT employees are taking on greater workload (hence the rising hours) because of improved business conditions – leading possibly to greater demand for employment in the future. To this point, we are seeing growth in PT employment (where most of the recent employment growth has been). If businesses are unsure of future conditions, that risk may be mitigated by hiring PT employees rather than FT staff. We have seen a significant pick-up in PMI and PSI indexes during September 2013, as well as improved consumer & business confidence leading into the election. This scenario seems plausible – low interest rates appear to be fuelling further activity in real estate and some business investment and the lower Aussie dollar has likely helped some sectors in the economy. Note that the A$ has now moved higher again as a result of the US Fed NOT tapering is QE program.

There is no definitive answer at this stage. But the state by state analysis points to a recent deterioration in FT employment growth in some key states.

State by State (trend data)

The state by state data shows two things 1) employment growth is slowing in most states (not a good thing) and 2) the growth in total unemployed persons is also slowing (a good thing).

Growth of total employed persons has slowed (annual v last 6 mths) across all major states – NSW, VIC, QLD, SA, WA & ACT.

Source: ABS

The main areas of concern are the bigger states, specifically NSW & Vic.

NSW represents just on half of the entire National growth in total employed persons (NSW = +60k v Nat=+118k, annual). Growth in employment in NSW has been slowing down – on a 6mth basis growth is 0% and on a month on month basis, that figure is now -0.1%. Underlying these numbers are further concerns – most of the employment gains are being driven by PT employment. In NSW, of the +60k growth in total employed persons (or +1.7%) year on year, 41k of those were PT employed. In the last six months, this situation has worsened dramatically. Growth in Total persons employed was only +1.7k persons (or 0%), but underlying that was a decline in FT employed of -11k, which was offset by a rise in PT employed of +13k. At least there was PT employment to take its place.

This is what the trend in growth in FT v PT employment in NSW looks like over the last two years;

Source: ABS 

There has been a marked deterioration in FT employment growth in NSW since early 2013. This is important because NSW currently represents half of the National growth in employment.

A similar trend is also evident in Victoria which is the second biggest state in terms of contribution to National growth in employed persons (representing 24% of the National growth).

Source: ABS 

Whilst the trend in FT employment between Mar ’12 and early 2013 had been improving, that has now reversed. On an annual basis, the total number of employed persons in Vic grew by +29.6k persons. Of this total, PT employed was +30k and FT employed was -0.4k.

This is also the situation in SA, WA and ACT. Its worthwhile taking a quick look at WA given how important this state was to total employment growth only a short while ago;

Source: ABS 

The high back in 2012 of +60k growth in FT employed persons was the all-time high in WA. Clearly WA was punching above its weight in terms of employment growth versus its population size, hence why it was such an important state. Growth in both FT & PT employed is slowing/low in WA.

Only two markets are showing growth in FT employed persons – QLD and TAS.

The other side of the equation is unemployment. The news here is a little better – in the most recent six months, the rate of growth in unemployment is slowing down in all markets:

Source: ABS 

As I mentioned before, this slow-down in the rate of growth of total unemployed persons is a good thing. Whilst the slow-down is significant in most cases, note that unemployment is still growing. Just for context, in NSW that rate growth in total unemployed persons has slowed from 15% annual to 8% over the last six months. Thankfully that has slowed further in the month on month figures to only +1.2%, but note in the chart below, that the actual number is still on its highs (+29k Aug ’13 v Aug ’12).

The state by state trends also shows some encouraging signs;

Source: ABS 

WA, QLD & ACT are now in a down trend and WA & ACT actually recorded a decline in unemployed persons Aug v July. The latest month on month data also has the rate of growth slowing across most markets.

Putting this all together, employment growth is slowing, but unemployment growth has also started slowing;

  • FT employment growth continues to show weakness, especially the recent trend in the larger states – this is the biggest area of concern going forward
  • PT employment is growing, helping to offset the slow-down in FT employment growth

In all, this is a very weak labour market and unless there is stronger growth in FT employment, this may place further pressure on household income and spending.

The question now is whether there are any indications of a change on the horizon?

Forward Indicators

There are a number of indicators that can provide some insight as to future changes in employment – job ads, vacancies, hiring intentions and business confidence.

ANZ Job Ads

Analysis by the ABS in 2002 suggested that the ANZ job ad series leads troughs in the labour market by zero to two quarters. In Sept, job ads rose 2% month on month (compared to a fall of 2% in the prior month).

Source: ANZ 

Looking at the trend in growth, it appears that the rate of decline in job ads has slowed down. Job ads are approx. 20% below the same time last year though and this still suggests a very soft labour market. Whilst this data isn’t pointing to an improvement in labour market conditions, it’s not pointing to a further deterioration either.

ABS – Job Vacancies (6354.01)

In this series, a ‘job vacancy’ is defined as “a job available for immediate filling on the survey reference date and for which recruitment action has been taken.” (Source: ABS). This data point indicates continued weakness in the labour market – the rate of decline is -20% (year on year) and does not look to be slowing down at this stage.

Source: ABS 

Hudson Hiring Intentions – Q3 2013

The Hudson Hiring Intentions survey (permanent staff) points to continued weakness in labour market conditions. Interestingly, it seems to reflect the current status of the labour market quite well;

  • More firms keeping staffing levels “steady” (unchanged) and a decreasing number of firms wanting to grow the size of their workforce – this points to the low growth in employment that we’ve seen
  • A fairly steady number of firms looking to decrease the size of their workforce – this is consistent with a slowing in the growth of total unemployment

Source: Hudson 

NAB – Business Confidence

I think it’s also worthwhile considering the role of business confidence as a possible forward indicator of labour market conditions. In the latest month (Sept 2013), business confidence continued its somewhat strong upward trend. According to the NAB survey this is the result of recent strengthening in asset prices aided by lower interest rates and better consumer sentiment. “Fundamentally, however, it appears to reflect a reaction to the political change”. This seems to be a common theme in recent data series, so it will be interesting to see if this rise in confidence a) continues and b) results in better business conditions.

Source: NAB 

The two most important points from the survey report were:

  • The business conditions index improved, but remained negative. Improvements were driven by finance/business/property and construction
  • In light of these improvements, employment conditions remained subdued, suggesting continued weakness

From the NAB Sept Report: