Month: April 2015

A stronger employment market – March 2015

The March labour force report shows far more robust labour market conditions in Australia.

The change from the data in February is the result of the annual seasonal reanalysis by the ABS up to February 2015. The revised data indicates that the labour market has been improving more than previously thought. There are more full-time (FT) employed persons, greater FT employment growth, lower growth in unemployment and improving levels of participation. Employment growth needs to continue to accelerate beyond the current level of labour force growth in order to make continued inroads to reducing unemployment and improving participation. Given the current level of economic growth, it’s difficult to see how this will happen.

The revision – same month, two very different pictures

From the ABS:

“The annual seasonal reanalysis of the Labour Force series was conducted on estimates up to February 2015. The seasonally adjusted and trend estimates in this issue reflect adjustments made as a result of this reanalysis.

While combined seasonal factors for the complete time series are estimated each month, the parameters and prior corrections are reviewed annually at a more detailed level than is possible in the monthly processing cycle. The annual seasonal reanalysis takes into account each additional year’s original data and assesses the appropriateness of seasonal adjustment parameters and prior corrections. The average absolute revisions to seasonally adjusted and trend estimates arising from the 2015 annual seasonal reanalysis were small but larger than those seen in recent annual seasonal reanalyses. This is a result of applying specific adjustments for the changed pattern of supplementary surveys to the entire Labour Force series.”

You can read more here.

Before I get into the usual details of the labour market performance, I wanted to highlight the scale of the change that took place in the data between February and March 2015.

Below, I have taken a snapshot of the major labour market aggregates in February using the February data and then taken the same snapshot of the labour market in February using the revised March data.

According to the February 2015 labour market data, the labour market was showing some signs of improvement, but overall employment growth remained well below the ten year average, running at 75% of the ten year avg. Part time (PT) employment growth was stronger than FT over the short term and unemployment growth remained elevated, especially over the six month period where growth in total unemployed persons was similar to the growth in total FT employed persons. Overall, not great conditions, but also not deteriorating.

(The National summary measures the change/growth in persons across the major employment aggregates)

Source: ABS

Using the March 2015 data, the labour market in February looks decidedly more positive:-

Source: ABS

The major areas of difference are:

  • Additional 32.1k annual growth in FT employed persons
  • Slightly lower annual growth in PT employed persons of -1.7k persons
  • Annual growth in unemployed persons reduced by -8.4k persons, meaning slower growth in total unemployed persons

This is ALL good news. The annual rate of total employment growth is now +182k persons which is 90% of the average annual rate over the last ten years. Total employment growth needs to reach at least that average (which coincides closely with annual population growth) in order to start to reduce the level of total unemployed persons.

The monthly change in employment growth suggests that this improvement started five months ago in November 2014.

Using the February 2015 data, employment growth had accelerated from July 2014. Despite the acceleration in growth, the peak in the most recent expansion, December 2014, was still well below the peak of employment growth in early 2014 and 2013. Growth over the last seven months had been dominated by PT employment growth, but FT employment growth had at least remained steady at around 6.5k – 7k growth over the last 4 months.

Source: ABS

Using the March labour force data, I have recreated the same chart as above up until February 2015. The major differences are evident over the last four months in the chart compared to the one above:-

Source: ABS

Total growth in employed persons over the four months to February is now higher and is also higher than at any time in the last two years. That growth has been driven by FT employed persons rather than PT employed persons – this is a large change and one that is a very positive sign for the economy.

So if the labour market has been improving more than we thought over the last 5 months, does this mean that we should expect to see a corresponding lift in aggregate demand?

The new and improved labour market as at March 2015

Picking up now with a review of where we are as of March 2015 and the view of the employment market is looking much stronger than at any time over the last few years.

Source: ABS

The highlights:

  • This is the first month where unemployment FELL in over 37 months with at least a modest -1k fall in unemployed persons versus February
  • FT employment growth outweighs PT employment growth across all time periods, but has been especially strong over the latest month

Victoria is leading overall employment growth

On a state basis, annual employment growth has been driven by 3 key states – VIC, NSW and WA.

Victoria has rocketed to the lead with annual employment growth of +97k persons, driven mostly by PT employment growth. In fact, PT employment growth in VIC at +65k persons is the highest level recorded in the history of the data series. That said, both PT and FT employment growth numbers are strong.

Source: ABS

In WA, despite the backdrop of falling iron ore prices, shuttering mines and cost cutting, employment growth has edged up into 2nd place above NSW. But beware, this annual figure hides the point that FT employment growth in WA in the latest month versus month is almost zero, and has been trending down over the last few months. Growth in PT employed persons is driving total WA employment growth in the latest months – not a good sign.

Employment growth in NSW is almost entirely driven by FT employment growth.

Source: ABS

Employment growth in states such as QLD, SA TAS, NT and ACT remain at low levels.

Are we seeing the first signs of reduced unemployment?

The total number of unemployed persons in Australia has grown continuously since December 2011 – thirty-seven months. This has been equal to the thirty-seven months of continuous unemployment growth of the last recession in the early 90’s. Whilst the growth in unemployment isn’t as high as “recession times”, the debilitating effect on families, households and individuals is exactly the same.

Although the total number of unemployed persons remains elevated, this was the first month where there was at least a monthly decline in the total number of unemployed persons. The annual rate of growth in unemployed persons is currently at +46k persons, but on a monthly basis, total unemployed persons declined by 1k.

Source: ABS

The slowdown in unemployment growth has been driven by three states – TAS, VIC & SA:-

Source: ABS

At the same time, annual unemployment growth has picked up in NSW, but the more recent monthly numbers show that rate of growth in unemployment in NSW is now slowing. Growth in unemployed persons remains higher in QLD and WA, but growing at a decreasing rate.

But if employment growth has been accelerating, why hasn’t unemployment started falling earlier?

The chart below looks are difference between total employment growth and the growth in the labour force. Where that difference is below zero (chart below), it means that the labour force is growing faster than employment – when this happens, unemployment grows.

The month of March was the first time since Jan 2012 where employment growth was higher than growth in the labour force. The difference equals the decline in unemployed persons.

Source: ABS, The Macroeconomic Project

The reason why unemployment hasn’t started to improve earlier, is that there has been an improving rate of participation, for males at least, over the last 5 months.

The growth in the labour force can be broken down in two ways. The first is by looking at the changes in employment and unemployment. The second is by looking at changes in the working age population and the participation rate. The chart below measures the monthly change in the labour force by looking at population and participation changes (the stacked bars). The line represents the monthly change in total employed persons.

This highlights that while employment growth has been accelerating since July 2014, so has growth in the labour force. BUT, the population element (blue bars) started to slow in Jan ’15 while the growth in the labour force came from an increase in participation.

Source: ABS, The Macroeconomic Project

The last bar in the chart above for March 2015, shows that employment growth was higher than the growth in the labour force. Unfortunately, the subsequent decline in total unemployed persons appears to be due to a slower rate of growth in what population growth is adding to the labour force, rather than a continued acceleration in employment growth.

Improving participation of Males

But it’s still a good news story if participation is improving. One of the hallmarks of the labour market over the last few years has been the declining labour force participation rate. This is a key measure of labour supply – how many people are looking for work or are employed. A declining participation rate has implications for economic output, spending and government tax receipts. It can be an indicator of poor market conditions – reflecting a growing proportion of ‘discouraged workers’. It can also be a structural issue, as is the case facing many countries where populations are ageing. It’s difficult to ascertain the exact reason why workers drop out of the labour force, but you can at least highlight the demographic structural change. Read more here.

Of the 231k annual growth in the size of the labour force at March, 30k was due to an increase in participation. This was due to an improving level of male participation:-

Source: ABS, The Macroeconomic Project

The labour force participation rate has been steadily improving for males, but is still well below the pre-GFC peak.

Source: ABS

The March labour market report shows promising improvement in employment conditions in Australia, especially over the last five months. With most metrics moving in the right direction, the question is whether this momentum can be sustained. Even though employment growth has improved, it needs to continue to accelerate. This will help to resolve two major issues that have plagued the labour markets – falling participation and persistently high unemployment. The question is, where will the stimulus come from to drive this acceleration in employment growth? Lower petrol prices over the last few quarters of 2014 have no doubt provided some boost to consumer spending. But further interest rate cuts will possibly provide relief for more indebted households, rather than provide any real stimulus to non-mining investment. The economy continues to face many headwinds – falling commodity prices, the full impact of the fall in mining investment and slowing credit growth. These are likely to weigh further on economic and employment growth.