Month: November 2015

Improved labour market conditions Oct 2015

I normally wouldn’t do a labour market update in consecutive months, but it’s important to set the record straight this month.

The ABS has released the October Labour Force data which now shows a significantly different view of the performance of the labour market during 2015. In my Sept update, I had characterised the labour market as having lost is growth momentum during 2015. Some of the trends I highlighted, in a somewhat sobering labour market update in Sept, have been reversed in the latest data for Oct 2015. It’s not an issue of one ‘outlier’ month of data, it’s that the 2015 YTD data was revised in most cases. For clarity, I am using the trend data series.

The main point from my last two posts was that the annual figures hid some emerging negative trends in the monthly growth statistics. The October data has mostly reversed those more concerning monthly trends. The result is that employment growth is higher and, while employment growth is not accelerating, it has remained consistent throughout 2015 to date. Importantly, employment growth is now higher than that of the labour force, so we are starting to see declines in the level of unemployment. Improvement in participation is still resulting in more workers added to the labour force, but at a slowing rate, due mostly to slowing growth in female participation. There are still a few pockets of concern on a state basis, but nothing as severe as what the Sept data was pointing to.

I’m revisiting the points from my last two posts using the revised data in order to highlight the significance of the change in the ABS data between Sept and Oct and to ensure the analysis reflects the most up to date information.

The Sept data highlighted that on a monthly basis, employment growth had halved since Feb 2015

According to the latest Oct data, employment growth has been averaging 22k a month since Dec 2014. This is far cry from the situation in the Sept data where employment growth had halved since Jan 2015. The chart below compares the same employment growth data from the Sept and Oct releases – the accelerating slow-down in employment growth that was evident in the Sept data is no longer evident in the Oct data.

Source: ABS

The growth in FT employed persons was upgraded by +26k persons YTD, whereas growth in PT employed persons was upgraded by 9k persons for the YTD.

Growth in FT employed persons had also more than halved since Feb 2015

The data released in Oct now shows that growth in FT employed persons has been growing at a much higher level > 10k/month since late 2014.


Source: ABS

The trend still does look like its slowing, but nowhere near the level of deceleration that was evident in the Sept data.

Note that there are still a few states where FT employment is declining in the qtr to Oct 2015 – QLD, SA, NT & ACT.

In Sept, improving levels of unemployment was more a function of labour force growth slowing faster than employment growth

This was the chart I posted in my previous update. I didn’t think that the underlying reasons for the slow-down in unemployment growth, where the labour force growth is slowing faster than employment growth, was a positive indicator. From my previous post:

“This chart also highlights that the overall dynamic of the market is negative – it’s based on slowing growth. To be confident that the economy is growing strongly enough to reduce unemployment, employment growth should be accelerating and be above labour force growth – we aren’t seeing that happen at the moment”

Source: ABS

Fast forward to October. I’ve replicated the chart above using the new data. The new data shows stronger and more consistently high employment growth which is now above growth in the labour force.

Source: ABS

What the new data is telling us is the decline in unemployment is now due to higher employment growth versus the labour force, rather than due to both slowing. But the data does still suggest that this is being helped along by slowing labour force growth. Employment growth isn’t accelerating, but it is still quite high. If participation and population were growing at an increasing rate, then we may not see these improvements in unemployment.

Male employment growth in the short-term looked poor

Using the Sept data, male employment growth had slowed fairly significantly during 2015, especially FT employment growth which had averaged <2k/mth growth since April.

Source: ABS

The chart below highlights how this has now changed in the Oct data. Rather than slowing, growth in FT employed males has been accelerating since May 2015 and is well above PT employment growth. This is a complete turnaround from the situation outlined in Sept – with the exception that male PT employment growth has continued to slow.

Source: ABS

Using the Oct data, the employment situation is looking much better for males. Over the YTD 2015, male participation has improved, employment is growing and unemployment is declining.

NSW driving overall employment growth, especially in the Sept qtr

Even in the revised data, NSW is still the main driver of overall employment growth in Australia. Comparing both the Sept to Oct data for the Sept qtr highlights where the major revisions have occurred.

Source: ABS

The two biggest turnarounds in trend have been in VIC and WA. Employment growth in both states is now starting to accelerate rather than slow or decline.

Employment has grown by a larger degree in the Sept qtr in NSW, VIC, QLD and WA.

Employment growth is still declining in SA and ACT. Employment growth in NT has turned negative in the Oct data release.

The biggest trend change was in VIC. The chart below compares the difference between the two data releases. The latest data (blue line) now has VIC employment growth accelerating. This was a fairly major point from my previous post, given how big and important this state is to the National picture.

Source: ABS

Whilst the level of employment growth in VIC is still low, the trend has improved.

National labour force summary – October 2015

The upshot is that the labour market is looking stronger as of October. Importantly, growth in FT employment is higher than PT across all time periods. The other important feature is that for the first time in 50 months, unemployment is declining on an annual basis.

Source: ABS

The monthly growth trend shows that employment growth remains high, but underlying that remains a slow-down in FT employed persons. It appears that overall employment growth has slowed over the last two months – and this could be a function of the ‘trend’ data series.

Source: ABS

A similar pattern is always evident in the population data in the latest month or two. It usually takes more than two months to establish whether this part of a new trend. The chart below is a good example.

In the latest two months, “what population growth is adding to the LF” (the blue bars) appears to be slowing quickly. But over the YTD, you can see that this component has been fairly stable. We know that population growth is slowing and if we looked at the same chart over a longer time period, slowing population growth is evident since early 2012. But there is no broader market reason for a precipitous decline during the last 2 months.

The other factor impacting growth of the labour force is the change in participation. For the moment, it is slowing growth in female participation that is driving this lower level of contribution of participation to labour force growth.

Source: ABS

Slowing population growth and a slow-down in what participation growth is adding to the labour force is helping to improve unemployment.

The revisions to the labour force data do raise ongoing questions about the data. These issues have been well documented in the past and it seems that the fixes will continue to take time to take effect. The current fluidity of the data highlights the need to benchmark the labour market indicators more broadly.

Labour market by state highlights deteriorating performance – Sept 2015

This is an important follow up to the recently published post on the Australian labour market as at Sept 2015. This post builds on that data by taking a deeper dive into the distribution of the current labour market performance across the states. The nature of this analysis tends to highlight changes in trend much earlier than annual growth figures.

The performance by state, especially more recently, I think, paints a slightly worse picture of the labour market because it highlights how reliant the slowing aggregate figures are on just several states. The states where employment is continuing to grow are NSW, QLD and TAS. Even then, there are caveats attached to NSW and QLD.

Overall, the slow-down in employment growth is most evident across every state except Tasmania. In fact, in states such as VIC, SA, WA, NT and ACT, employment growth has slowed throughout 2015 and has started declining. The labour market performance in Victoria throughout 2015 is most concerning, given its size and importance to the National picture. It’s surprising that this development hasn’t been getting more airtime.

There are a few bright spots throughout the data where, for example, where FT employment is at least growing faster that PT in markets such as WA and Tasmania.

Importantly, the state employment data is consistent with the growth trends in hours worked by state presented in the previous post.

Employment growth in the latest quarter driven primarily by NSW

On an annual basis, the distribution of employment growth across the states looks good, with employment growing across most states except SA. But even on an annual basis, 50% of the National +232k person annual growth in employment is attributed to one state – NSW.

Source: ABS

Employment growth in the latest quarter shows quite a deterioration in this situation (red bars in the chart above).

In the latest quarter, employment declined in Vic, SA and ACT and barely grew in WA & NT. This is consistent with the hours worked data in the previous post.

The trend of this growth over the last 12 months is concerning.

I apologise for this next messy chart – just bear with me. It measures the trend in the monthly change in employed persons by each state. If you add up each of the monthly changes for each state over the last 12 months, you’ll get the National annual employment growth figure of +232k persons. This is one way of looking at the underlying distribution of the annual growth figures.

This chart yields several important insights, the most obvious that employment growth is slowing in most states, notably in the bigger states of NSW and VIC.

Source: ABS

New South Wales

Despite having the highest annual growth in employment of any state over the last 2 years, employment growth in NSW has halved since May ’15. At least most of the employment growth is still driven by full-time (FT) employed persons. Unfortunately the growth of FT employed persons in NSW has also more than halved since May 2015. Growth in part-time (PT) employment has fallen to low levels, averaging <1k growth/month. Growth in the NSW labour force has been faster than that of employment over the last 4 months, so the total number of unemployed persons has started to grow again. Despite looking strong at a discrete point in time, the labour market in NSW seems to have lost some momentum over the last 6 months.

Victoria

Vic has gone from reasonably strong monthly employment growth peaking in Dec 14, to declining employment levels over the last 4 months. If there is any consolation it’s that this decline has not accelerated to the downside –the decline has remained small thanks to slightly higher growth in PT employed persons.

The alarm bells should be ringing regarding the labour market in VIC. Full-time employment has been declining for 6 months and PT employment growth has been <1k persons a month for the last 4 months.

Source: ABS

Unemployment has started growing, but that growth remains low likely due to the significantly lower growth in the labour force at the same time. As a result, the unemployment rate has only been ticking up ever so slightly. The slow-down in labour force growth is partly due to the fall in the VIC participation rate from 65% in Feb to 64.5% in Sept 2015. These data points may have important implications for Victoria – especially the housing market, where Melbourne is the second fastest growing real estate market in Australia.

Queensland

This is the only other state showing any significant level of employment growth (in terms of actual number of persons). The trend in employment growth has been positive for most of 2015 and growth has remained consistent at just below 5k persons/month. Whilst this looks positive in the aggregate, most of this growth has been driven by PT employment growth. Growth in FT employment has been slowing since Feb 2015 and started declining from June 2015. Employment growth has shifted from FT to PT employment and whilst this is not ideal, it’s better than no employment growth. Employment growth has remained higher than growth in the labour force for most of 2015, so unemployment has been falling. In the latest month of Sept 2015, employment growth was only slightly lower than growth in the labour force.

South Australia

At the start of 2015, there were some promising trends in SA employment growth, with total employed persons growing from Jan to May 2015. Unfortunately, employment has now begun to decline again over the last 4 months and has been accelerating to the downside. Driving this trend is a decline in both FT and PT employed persons. Whilst both are declining, the decline in FT employed persons is at least slowing:-

Source: ABS

Unemployment growth has started to slow at the same time – which is likely the result of the labour force declining slightly faster than employment growth in recent months. The unemployment rate in SA is the highest of all states and is now at 8%. There needs to be a fairly significant increase in employment growth in excess of the labour force growth in order to reduce this level of unemployment. It’s no coincidence that we are now talking about the production of submarines and the processing of nuclear fuel rods in SA.

Western Australia

This is an important state in terms of tracking the impact of developments in the mining industry. Employment growth in WA just turned negative in the latest month Sept 2015. The trend of employment growth looks quite concerning (growth has been slowing each month since July 2014 and is now negative) and this fits with the negative outlook for WA. The monthly change in employment over the last five years shows just how much employment growth has slowed in WA:-

Source: ABS

At least more recently, the underlying FT/PT employment growth has shifted to become more positive. Full time employment has started to grow from July 2015, while at the same time PT employment has been declining, which is dragging down the total level of employment growth in WA. Unemployment has been growing, but at a slowing pace – thanks to slowing labour force growth. The annual growth in unemployed persons is tracking well above historical averages.

Tasmania

This state continues to confound. Employment growth in TAS is now the third highest (in terms of actual number of persons, no less!) in Australia in Sept and for the quarter ending Sept 2015. The trend shows that most of this growth is being driven by FT employment growth, while PT employment growth is slightly negative. There is some indication that this trend may be starting to reverse, but it’s too early to tell. Employment continues to grow faster than the labour force in TAS, even while participation continues to increase, resulting in the ongoing decline in total unemployed persons. It’s the only state in Australia at the moment where the labour market looks strong.

Northern Territory

This is another bellwether state for the mining industry. Employment growth has started to decline only in the latest month, driven by declining PT employed persons. The total number of FT employed persons continues to grow, but that growth has slowed throughout 2015. Employment growth overall has been lagging behind labour force growth and as a result, unemployed persons has been growing since Dec 2014.

Australian Capital Territory

Despite a promising start to 2015, total employed persons in the ACT has begun to decline in each of the last 3 months. This decline in employed persons is being driven by declining FT employment, which has been accelerating lower since June 2015. At the same time, PT employed persons has been growing but not fast enough to counter the decline in FT employed persons. As a result, total unemployed persons has been growing again over the last six months.

Employment growth by state is consistent with the growth in hours worked

This overview of employment growth by state is very much in line with the hours worked trends outlined in the previous labour market post. The only markets where hours worked have grown in the latest quarter are NSW, QLD and TAS. This represents a negative shift from the annual data where hours worked only declined in two states – SA and ACT.

Source: ABS

To recap the shifting trends in hours worked data by state:–

  • NSW still strong, but rate of growth is slowing
  • TAS still strong
  • QLD starting to improve in the last two months
  • On the fence – NT hours stalling, slightly declining
  • Worst performers where hours have declined – SA, ACT and WA
  • Hours worked have declined in VIC, but it looks more like a ‘high plateau’ rather than a serious decline at this stage

The short term employment indicators are pointing to a deterioration in performance across most states. These trends are just starting to emerge and, if they continue, could have important implications, especially in states such as VIC. It will be important to keep this state by state view in mind when looking at further developments in areas such as housing credit and house prices. For the moment, I’ll continue to keep track of these trends, as changes in employment levels are an important indicator underpinning consumption and output growth in the economy.