Month: April 2014

Australian Employment – Improves in Q1 2014

First quarter 2014 employment data indicates a change in trend in the labour market.

Whilst annual growth in employment remains below historical averages, there has at least been a positive shift in direction over the last few months. That positive shift has been from Part Time (PT) to Full Time (FT) employment growth and a halt in the decline of the participation rate. For the moment, unemployment continues to grow, albeit at a slower pace. The two main states driving growth in employed persons are NSW and QLD, whilst employment conditions in VIC remain a concern. 

National Summary

The annual employment indicators still paint a grim picture of the labour market. But the improvement is evident across all indicators of employment over the last quarter. The National summary (below) highlights the main improvement of the last few months –higher growth in FT rather than PT employed persons.

Source: ABS

Growth FT employed persons has exceeded the growth in PT employed persons for the third month in a row.

Whilst growth in PT employed persons has slowed, I’d argue that this isn’t such a bad thing – at least conditions are such that businesses are committing to FT employment rather than PT. The main advantage of higher FT employment is of course higher incomes.

The trends underlying the annual growth figures really come to life when viewed on a month by month growth basis. The chart below shows the monthly change in total employed, total unemployed and the participation rate over the last 12 months to March 2014.

Source: ABS & The Macroeconomic Project

Employment growth has been improving since October 2013, and now the decline in the participation rate has also started to reverse.

The labour force grew by +136.8k over the last year, which is the sum of all the red and blue bars in the chart above. Just for clarity – annual growth in total employed persons +75.168k plus +61.645k growth in total unemployed persons (see National summary chart).

I have also calculated the change in the labour force based on the month on month movement in the participation rate (month on month change in participation rate*Working Age Population (WAP)). At Mar 2014, the annual change in the participation rate was -0.4% pts – which, based on current WAP estimates, equals -75.391k persons leaving the labour force over the year. The sum of the green bars (above) represents that total annual change in the labour force due to changes in the labour force participation rate (-75.391k persons).

If the participation rate had at the very least, stayed the same as the year prior, the labour force would have instead grown by +212k persons (+136.8 plus +75.391k).

Total Employed Persons

The annual growth in total employed persons remains low, but the trend is no longer in steep decline.

Source: ABS

The ten year average for growth in total employed persons in March is +207k persons. At March 2014, annual growth in total employed persons was +75.1k persons – still well below the longer term average. To get an understanding of how low growth has been, the current annual rate of growth is the second lowest over the last 10 year period, only lower during the GFC.

Underlying this low growth was further evidence of weak conditions in the economy. The trend over much of 2013 (which started all the way back at the start of 2010) was higher growth from PT employed persons than FT. In fact the proportion of PT to total employed persons reached a peak of 30.47% only recently in Feb 2014. Whilst PT employment growth is better than no employment growth, the implication is lower incomes.

But since Dec 2013, the change in FT employed persons has improved from -41k to -2.5k in Mar 2014 – almost a return to positive growth.

Source: ABS

Over the month Mar 14 v Feb 14, FT employed persons grew faster than PT: +0.14% versus +0.09% for PT employed persons. Total employed persons grew by +0.12%.

Total Unemployed Persons

Whilst there has been improvement in the composition of employment growth, there has also been a slowing in the growth of total unemployed persons. The current annual growth in total unemployed persons has slowed slightly to +61k persons. Just to be clear, total unemployed persons is still growing, but at a decreasing rate. In Mar ’14, month on month growth in total unemployed persons was +0.45%.

Source: ABS

Underneath this data is a slightly different picture for male versus female unemployment change, which again, you need to see on a more micro month versus month basis to see the change in trends.

Source: ABS

The rate of growth in total unemployed males has been slowing down for most of 2013, but that slow down accelerated during the last quarter of 2013. Growth in total unemployed females, on the other hand accelerated at the same time, but appears to have slowed recently as well (good signs).

Total Labour Force and Participation Rate

Growth in the Labour Force continued to slow in March 2014, with annual growth of +136.8k persons – the lowest annual growth since Feb 2012.

Source: ABS

The continued slowing of the growth in the labour force at March 2014 is an issue of timing. The annual data doesn’t highlight that the relatively weaker employment conditions of the last year are only just starting to abate. Below is the same chart from earlier in this post – the factors that affect changes in the labour force – change in employed persons, unemployed persons and participation.

Source: ABS, The Macroeconomic Project

The message from this chart is that despite the slowing growth in the labour force on an annual basis, the trend in its components are improving. If this continues, we will start to see growth in the labour force accelerate.

Labour Force Participation Rate (LFPR)

Since Dec 2010, there has been a decline in the LFPR. You can read about the reasons behind the declining participation rate here.

Source: ABS

Over the last four months, the participation rate has stopped declining, and has ever so slightly increased over the last two months. This has been due to improvement in both male and female participation.

The chart below is the same measure of the impact of the change in participation on labour force growth – calculated as the monthly change in participation*WAP but this time split out by gender. On a monthly basis, male participation has stabilized – the chart below clearly shows that there has been greater negative impact on male participation over the last twelve months.

Source: ABS & The Macroeconomic Project

State by State

The state by state data points to fairly uneven contribution to employment growth. On an annual basis, QLD and WA have been the main contributors to employment growth, but this has started to shift.

Source: ABS

On a monthly basis, QLD and now NSW especially, have been the main contributors to growth in employment. Most of the growth in total employed persons in NSW in the latest month is FT in nature. In QLD, most of employment growth over the last year and in the latest month, has been PT.

In TAS, NT, NSW, ACT and WA, growth in FT employment is starting to replace growth in PT employment. The same is happening in QLD, but this is still in the early stages. In VIC and SA, both FT and PT employment growth has been slowing.

The turnaround in NSW is also evident in the slowing of growth in total unemployed persons. Growth in total unemployed persons in NSW peaked at over 30k persons and growth has now slowed to below 10k on an annual basis.

Source: ABS

Unfortunately, growth in total unemployed persons in VIC has reached a new peak and growth in WA and QLD has started to increase as well.

It would seem that the bigger improvements over the last few months are due in part to improvement in NSW.

Employment by Industry

I wanted to marry-up the changes in employment and unemployment growth over the latest quarter with industry based movements to get a sense of what industries are driving this current bout of employment growth.

The data used here is slightly different to the employment report data above. It’s collected on a quarterly basis and is supplied in original format.

In the latest quarter to Feb 2014, employed males grew by +48k and employed females declined by -27k (qtr Feb 14 v qtr Nov 13). This is how that growth & decline is split by industry – note that the data is ‘change in thousands of persons’.

Source: ABS 6291.0.55.003

Growth in male employed persons in the latest quarter has been driven fairly evenly between Info Media, Other Services (mostly ‘Repair & Maintenance’), Construction, Manufacturing and Health Care & Social Assistance. Notably absent is growth in Mining employment over the latest quarter.

This is what the longer term trend looks like for total employed persons in the 3 biggest mining segments – coal mining, metal ore mining and oil & gas extraction (given the importance of gas exploration and extraction as the next opportunity).

Source: ABS

It appears that the high growth in employed persons in metal ore and coal mining of recent years has started to slow. There has been a distinct pick up in employment in Oil and Gas Extraction, but this is a much smaller group.

Growth in total employed females has been hardest hit by declines in Retail, Accommodation & Food Service and Education. The decline in Retail was made up of -42k PT employed females and +3k FT employed females. Is the decline in retail saying something about the future (retail sales have been reasonable over the latest quarter)? Its possible that it is a seasonal layoff of staff after Christmas/New Year, but that doesn’t appear to be a regular trend.

Whilst all the short-term trends have improved, it’s unclear whether this is part of a more fundamental improvement or just a short-term bounce with another leg down to come. Other indicators of employment (job ads, business conditions etc) suggest that low growth in employment is likely to remain.

 

 

 

 

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Follow-up on Labour Force Participation – by state and gender

The beauty of the methodology introduced in my post Decomposition of the Aus. Labour Force Participation Rate is that it can be applied in different ways. In this post, I follow up on the previous analysis of the drivers behind the decline in the labour force participation rate (LFPR) by applying the same methodology to gender and state based data. The objective is to see whether this approach sheds any additional light on the issue of our declining LFPR – such as whether there is a geographic influence on the decline in the participation rate. There does seem to be a geographic influence – the only states where the labour force participation provides a positive influence at a National level are WA and NT. The positive impact in WA has been due to growth in the population share (given the relatively higher participation rate in that state) and in NT, due to growth in both population share and participation. This most likely the result of mining and mining related industry.

Breaking out gender by state confirms the findings of the previous analysis – lower male participation is a large driver the National trend. The effect of the ageing population (+65yrs) was/is widely touted as the reason for the decline in the LFPR. The main finding from the previous analysis was that the ageing population was just starting to have a negative effect on the LFPR from about mid-2013. Up until then, both participation and population share had been increasing at a similar rate for those +65yrs (within the time periods under review).

To recap the issue – the LFPR has been declining in Australia since it peaked in late 2010. Below is the latest view of the trend in the change in the participation rate. Over the last four months there has been an improvement (increase) in the participation rate. In some states this has coincided with employment growth.

Source: ABS 

To recap the methodology – I’m using exactly the same time periods of Dec 2010 v Dec 2013. The data available for this analysis by the ABS is not seasonally adjusted (original), so I’m using exactly the same months to compare but using a 3 month moving average for the Dec month data. From the previous analysis, Dec 2010 was the ‘benchmark’ month because this was when the LFPR peaked.

Consideration of a change in the National LFPR needs to take into account two elements – the shift in population share and the change in participation for any group. The following methodology from the Atlanta Federal Reserve was used last time:

Source: https://www.frbatlanta.org/documents/pubs/economicreview/er09no4_Hotchkiss.pdf 

Using part (1) of the decomposition we gain the following data regarding the weighted LFPR by state and gender – this converts the state participation rates into the components of the National LFPR (state-based participation rate * population share of each state).

Source: ABS & The Macroeconomic Project 

The ‘difference’ column highlights the change in LFPR between the two points in time as a function of changes in population share and participation rate. Again, it’s clear that males contribute the larger share (-0.804pts) of the (-1.13pt) decline in the National LFPR. Both WA and NT were the only states where male participation did not fall. The results are not as severe for females, although it’s directionally identical.

Part (2) of the analysis highlights that whilst changes in population share have had some effect on the LFPR, it’s mostly been changes in participation that have affected the National LFPR. Part one in the table below looks at the influence of participation rate changes and part two looks at the influence of changes in population share.

Source: ABS & The Macroeconomic Project 

In this case population share among states has been relatively stable over the three (3) year period. The two big shifts in population share have been 1) the decline in population share in NSW and 2) the increase in population share in WA. The results depend on where the population share shifts from and to (state or demographic group) and the relative participation rates in those groups. For example, the participation rate in WA is relatively higher than in other states (for males and females). Therefore the effect of the increase in the population share of WA is a positive one on the LFPR at a National level, despite its slight decline in participation rate. But if population share shifts to a lower participation group, it will likely drag down the overall LFPR, unless there is a corresponding increase in participation for that group.

Males in NSW had the single largest negative impact on the decline in the overall LFPR (-0.353pts of the overall decline). This is due to the combined impact of declining population share and declining (male) participation in the state.

Source: ABS & The Macroeconomic Project 

In NSW, male participation and population share peaked back at the start of the data series – Feb 1978. I’ve included a long-term chart to highlight that these are long-term trends. In order to have a positive effect, the decline in population share would need to be offset by an increase in the participation rate.

Males in VIC had the second largest negative impact on the overall LFPR (-0.314pts of the overall decline). But the situation is different to NSW – and highlights why you need to view the trend along with the data in the table above.

VIC is a standout as the largest contribution to the decline in male participation. The trend is clearly down (chart below), but that decline has slowed since mid-2012. Population share appears to have shifted from decline to slight growth during that time – but that change in population share is small.

Source: ABS 

The trend between these two points in time highlights that the situation in VIC may start to improve. The decline in participation appears to have slowed and population share looks to be growing. One theory behind the poor performance in VIC is the reduction in manufacturing related industry and employment over a longer time frame. Victoria isn’t the only state with manufacturing base, but it’s one of the main ones.

Males in QLD had the third largest negative impact on the National LFPR. Again, there was a slight increase in population share, but the falling participation rate of males in QLD resulted in a -0.196pts contribution to the overall National decline.

Source: ABS 

The participation of males in QLD has gone from an average of 73.8% to just on 71% – not an insignificant decline. The reasons for the decline in male participation in QLD are less clear.

The gender/state pair that has had the strongest positive influence on the participation rate was males in WA, contributing +0.195 points overall to the National LFPR. According to the data, this has been due mostly to growth in population share.

Source: ABS

Growth in population share alone is not enough to have a positive impact on the National LFPR. But in the case of WA, it has a relatively higher participation rate than the eastern seaboard states. Therefore the shift in population share to WA has had a positive impact on the overall LFPR, despite the slight decline in participation in that state.

The objective of this analysis was to see if it provided any additional insight into the declining LFPR in Australia by looking at state and gender data. The analysis confirmed two things 1) the main mining states of WA and NT have been the only states, for both males and females, that have had a positive impact on the National LFPR (during the two points in time used in this analysis) and 2) lower male participation has been the key driver behind the declining LFPR. The previous research highlighted that the male age groups of 45-54yrs and 15-19yrs had the largest negative impact on the decline in the National LFPR.