Employment Growth

Aussie labour market still underperforming – March 2017

Overall, the Australian labour market is still underperforming. Employment growth has fallen below the peaks of 2014 and 2015 and is still well below recent growth benchmarks.  There are some areas of “better” performance as of the March 2017 data, but two points put into question whether we are on the path to an improved labour market. First, despite the more recent pickup in employment growth, the current increase in participation is leading to an increase in the number of unemployed persons. While there is a reason to give this the benefit of the doubt, it does appear that employment growth is not high enough to absorb those workers returning to the labour force. Secondly, the welcomed and positive shift to greater growth in full-time employed persons has not been confirmed by the growth in full-time hours worked. Growth in aggregate hours worked has slowed throughout the March quarter.

The top-line seasonally adjusted number was strong – employment grew by +60k persons. This is the largest (seas adjusted) monthly increase since October 2015. I always look at the trend data though, and that was good for the month too. The annual seasonal reanalysis was completed in February, so this changed the ‘shape’ of many trends between the February and March data, but at least our benchmark for 2017 has been set.

Labour market is still underperforming…

Across different measures and benchmarks, the Australian labour market continues to underperform.

First, the trend in the annual growth highlights just how much the growth in employed persons has slowed in the space of the last year.

In March 2016, the total number of employed persons grew by 250k persons (annual) – in March 2017, that growth has slowed to +122k persons. Total unemployed persons are increasing again as more people come back into the labour market:-

Source: ABS

On the positive side, the annual growth in total employed persons has started to improve over the last 3 months. More on this shortly.

Second, annual growth in employed persons is sitting well below the 10-year average benchmark.

The 10 year average measures the average annual growth (in 000’s persons) for March over the last 10 years. The current annual rate of growth in employed persons (at March 2017) is +122k persons versus the average over the last 10 years of +189k.

Source: ABS

This is much worse when you break out full-time (FT) numbers. Annual growth in FT employed persons was a mere +25k persons versus the 10 year average of +102k persons. On the flipside, part-time (PT) employment growth is performing just above the 10-year average, +97k annual growth in PT employed persons versus +86k for the 10-year average. The current annual growth in total unemployed persons is now above the 10-year average – which is not a good thing.

Third, the current growth in the number of employed persons is below that of the labour force.

Comparing the gap between the growth in employment and growth in the total labour force is an interesting way to gauge the ‘strength’ of employment growth. The result of employment growing slower than the labour force is an increase in the number of unemployed persons.

Source: ABS

For most of 2015 and the first half of 2016, employment grew by a greater number than the labour force and unemployment fell as a result. The (now negative) gap between employment and labour force growth since Sept 2016 is not the widest it has ever been, but it does mark a shift to a more negative trend.

One way to view changes in the labour force size is by looking at what population growth adds and the impact +/- of changes in the participation rate. Over the last four (4) months there has been a shift to people coming back into the labour force and it’s this increase in participation that has contributed to the growth in the labour force:-

Source: ABS, The Macroeconomic Project

The exact reason why people are coming back (or left in the first place) into the labour force cannot be answered by this data.

Comparing employment growth to LF growth suggests that employment is not growing fast enough to ‘absorb’ those people coming back into the labour market. It could be a timing issue. Participation has been increasing over the last four months and the current median duration of job search in Australia is 12 weeks (unchanged from a year ago) so it might take a few more months of data to gauge whether unemployment continues to accelerate. But the fact that the median duration of job search hasn’t changed suggests that there hasn’t been much, if any, tightening in the labour market -the same median job search duration suggests that it is neither easier nor harder to find a job overall.

Finally, while employment growth has improved recently, the distribution of that growth among the states has not been broad based.

The annual growth in employed persons has been concentrated in VIC. The problem is that some of the states that had previously been bigger drivers of employment growth (NSW, QLD and WA) have completely underperformed versus the 10-year average:-

Source: ABS

Smaller states have performed better with regard to employment growth – NT, TAS, ACT and SA all performed above the 10yr average but most of that growth has been PT employment (which is still better than no growth).

Are we on the path to a better labour market performance? Have we turned the corner?

There is some evidence of more positive shifts in the labour market performance, but it is mixed.

A better sign is that on a National level, one of the more negative trends in the labour market appears to have reversed in the last five months. Full-time employment is now growing faster than part-time. I say this has been a negative trend because the underemployment ratio at an all-time high suggests that many are turning to PT work out of necessity and actually want more hours of work.

Over the last five months, FT employed persons has grown faster than PT. Below is the monthly change over the last two years:-

Source: ABS

But again, the distribution of this growth in FT employment, especially in this latest quarter is limited. Only two states have contributed to the bulk of this growth in FT jobs – VIC and WA.

Across the states in the latest quarter:-

  • NSW – PT job losses are driving the overall decline in employment for the quarter and FT employment growth has not been high enough to offset this decline. FT employ growth +3.7k persons and PT employed persons -8.6k
  • VIC – FT employment growth +14.1k persons and PT employed persons +1.8k
  • QLD – growth in PT employment has exceeded FT growth in the last 3 months but the trend for FT employment growth is looking positive. Growth in FT employed persons +3k and +10k PT employed persons
  • SA – growth in PT employment has exceeded FT and the trend has become more negative over the last few months. Growth in FT employed persons +0.3k and growth in PT employed persons +3.1k
  • WA – accounted for the largest growth in FT employment across all states – growth in FT employed persons +14.9k offsetting a decline in PT employed persons of -8.2k
  • TAS – an overall positive performance with +0.4k FT employment growth and +0.6k PT employment growth
  • NT – growth in FT employed persons +1.8k and +1.6k PT employed persons
  • ACT – growth in PT employment is just offsetting the decline in FT employment in the latest quarter. FT employed persons -1.2k and +1.3k PT employed persons

The turnaround in employment growth in QLD and WA is notable and NT continues to punch above its weight in the latest quarter. This is to be expected to a certain degree given the rebound in our main export commodity prices. But given these levels of employment growth, only in WA, TAS and NT has unemployment declined in the latest quarter.

While it is a better sign that FT employment has grown (increased income), PT employment growth has unfortunately been slowing and this has impacted overall employment growth in the last few months – the total growth each month (FT+PT) is still well below that of the peaks of 2014 and 2015.

Despite the shift to greater FT versus PT employment growth, the underemployment ratio has continued to rise:-

Source: ABS

In other words, a growing proportion of employed persons (9.1%) wants and is available for more hours. This is an important sign of how much slack still exists in the labour force and possibly how households might be coming under greater income pressure.

There is also a question mark over the rate of growth in FT employed persons – there has been a divergence between the growth in FT employed persons and the growth in FT hours worked over the last few months. 

There has been growth in the number of FT employed persons yet FT hours worked have been slowing and then declining month on month over the last four months:-

Source: ABS

It creates some doubt over which measure is the more accurate representation of the labour market – FT employment growth or FT hours worked?

Seeing hours worked grow faster than employed persons is easier to explain i.e as demand increases, it’s easier/faster/lower risk for firms to extend overtime hours of existing employees rather than expand the workforce, which takes longer. But it’s more difficult to see how we can be adding more FT employed persons, yet FT hours worked are declining. It doesn’t seem to be simply a timing issue – past data shows that the timing of the two measures is fairly consistent, with both measures turning at a similar time. In the chart above, the divergence has been occurring for most of the last half of 2016 and 2017 YTD.

No such divergence exists between the growth in PT employed persons and the monthly decline in PT hours worked:-

Source: ABS

Growth in PT employed persons and PT hours worked have slowed throughout the last half of 2016 to zero growth as of March.

Either way, there is a concerning trend that aggregate hours worked in the economy slowed throughout the March quarter.

Across most measures, the labour market is still underperforming. Employment growth is low, unemployment is increasing, under-employment is still increasing and hours worked is slowing.


Further deceleration in the Australian credit impulse – Feb 2017

The latest RBA credit and lending aggregates for Feb 2017 show that the growth in new credit has continued to decelerate.

Total Private Credit – growth in new credit decelerates further in Feb to -$24b

The growth in new credit at the aggregate level (total private sector) began to decelerate sharply from April 2016. Since then, the annual growth in new credit has gone from +$30b in April 2016 to -$24b as of the latest February 2017 data. This is now approaching the lows reached in mid-2013:-

Source: RBA, The Macroeconomic Project

The main driver of this slowing growth in new credit has been business credit, which has continued to slow since June 2016. The growth in new credit for mortgages started to accelerate in November 2016, but this has not been large enough to offset the deceleration in business credit growth.

Progressively smaller increments in the growth in new credit are likely to result in lower spending and growth. Consider that the annual growth in the stock of total private credit in February 2016 was $161.9b and this annual growth in credit slowed to $137.9b in February 2017 – overall, this is -$24b less annual credit growth in the economy. This equates to approx. -1.4% of nominal GDP.

Given the recent strength in economic growth data (which is so far only the Dec ’16 quarter), the question is whether other sources of spending growth, such as income, are accelerating to offset this deceleration in total private credit growth.

Read more on the Australian Debt and Credit Impulse page of this blog.

Australian labour market conditions continue to weaken – Oct 2016

There are, unfortunately, several concerning trends coming out of the October 2016 labour market report. Employment on a National level is declining, annual full-time (FT) employment is declining, part-time (PT) employment growth is slowing and the size of the labour force is declining as a result of falling participation. On the surface it looks like the falling number of unemployed persons is a bright spot in the report. That would be great if it was so, but falling participation is likely masking a higher number of unemployed persons. We don’t know the exact reasons why people are leaving the labour force, but I’m more likely to take a negative view of this outcome due to the number of declining employed persons. The implications of a weak labour market for private sector growth and budget outcomes is important. Slowing private sector credit growth, rising mortgage interest rates and a weak labour market is a combination that doesn’t bode well for private sector growth in Australia.

As always, I use trend data to analyse the labour force. The data points will move around from month to month, but it’s the broader trends that are important to focus on.

Annual growth in employed persons has slowed from +290k in Oct 2015 to +108k in Oct 2016

What a difference a year makes.

The chart below shows how employment growth has been distributed over the last 36 months. The most negative change has occurred over the last 12 months (if you add the monthly change for each of the last 12 months, you’ll get the annual change in employed persons of +108k).

The monthly growth in employed persons has slowed from a peak of +33k in Sept 2015 to National employment declining by -1k persons in the latest month.

Source: ABS

There are two important points about this chart.

Firstly, even though employment growth is declining, it is declining slower than the labour force. This means that, despite the point that employment is declining, the total number of unemployed persons is also declining. This is the labour market situation in a nutshell at the moment. Rather than be counted as ‘unemployed’, people are leaving the labour market and participation is falling. Declining unemployment isn’t a clear sign of an improving labour market when both employment and labour force participation are also declining.

There is a second important point. Declining National employment, even on a monthly basis, is a relatively rare event. Below is the monthly change in total employed persons going back to 1979 – there are only seven (7) periods where National employment declined on a monthly basis:-

Source: ABS

Since 1979, the periods when the monthly change in employed persons was negative were – 81/82, 90/91, 2000, 2003, 2008, 2013 and now. While only two of these periods were officially ‘recessions’, it easy to link each of these periods back some more general economic weakness. The most recent period of ‘weakness’ during 2012/13 (ToT falls/end of mining investment phase, GFC fiscal stimulus was wearing out and the impact of the European sovereign debt crisis), prompted the RBA to cut rates twelve (12) times, or 325bps, between Nov 2011 and Aug 2016. This helped indebted households as well as residential construction and the real estate market. We no longer have twelve rate cuts available to deal with any economic weakness.

Clearly, this current episode of declining employment is not anywhere near the severity of previous periods. But the direction remains concerning.

It would be easy to argue that this is a ‘one month’ data point and is more likely to result in revision in the following month due to the nature of the trend data. But you can break down this National employment trend to FT and PT trends and further still, down to state trends, to see that this is not a recent phenomenon. Some of the larger states have recorded declining employment well before the most recent month – NSW since August 2016, QLD since Jan 2016 and WA since Apr 2016. Employment growth in ACT has just started to dip into negative territory.

The number of FT employed persons declined by 50k over the last year

This is a disturbing part of this current labour market situation – the persistent decline in FT employed persons throughout 2016. This has been the driver behind the decline in overall employment.

Source: ABS

Growth in FT employed persons has been slowing since Sept 2015, turned negative in Jan 2016 and has stayed negative since. Until Sept 2016, the decline in FT employed persons was at least off-set by the growth in PT employed persons. The growth in PT employed persons peaked back in May 2016. Since then, growth in PT employed persons has been slowing such that the decline in FT employment equalled and exceeded any PT employment growth in the last two months. If there is a glimmer of hope, its that the cycle of decline in FT employed persons may have peaked in Sept looking at the chart above.

The state data shows how widespread the decline in FT employed persons has been. On an annual basis, only VIC, SA and ACT have seen any growth in FT employment. But in the latest quarter, the state picture worsens – only SA recorded any FT employment growth:-

Source: ABS

Australia is becoming increasingly reliant on part-time employment. Of total employed persons, 32% are PT employed – this is the highest proportion of PT workers in the data history. The underemployment rate has reached a new high in the August 16 quarter of 8.6%, highlighting that an increasing proportion of the labour force are available for and want more hours of work. It’s a telling point that suggests the shift to PT is not entirely by choice.

Unemployment is declining…but so is labour force participation

In the latest month, total unemployed persons declined by a further 4.15k persons. In the last 12 months, the total number of unemployed persons declined by -45k persons.

Source: ABS

This should be a great highlight of the labour force data – the falling number of unemployed persons. But we are in a situation where employment is declining at a slower rate than the labour force. Going back to the first chart in this post highlights this relationship:-

Source: ABS

The difference between the blue line (employment) for Oct 16 (-1.05k) and the orange line (total labour force) for Oct 16 (-5.2k) equals the monthly change in unemployed persons of -4.15k. As mentioned, this declining unemployment isn’t a clear/consistent sign of an improving labour market when both employment and labour force participation are also declining.

Labour force participation falls to 64.5% – almost back to where it was ten years ago

The other way to measure the changes in the labour force is to estimate what population growth adds to the labour force plus changes in participation. This perspective highlights the severity of the current round of declines in the labour force participation:-

Source: ABS, The Macroeconomic Project

As mentioned in previous posts, its best to ignore the two most recent estimates for underlying population growth – they are always low for the most recent months.

In the last year, I’ve estimated that underlying population growth has added approx. 185k persons to the labour force and the decline in participation has resulted in -122k persons leaving the labour force. This equals the annual growth in the labour force of +63k persons. On a monthly basis, the labour force size has been declining for the last 3 months – driven by declines in participation.

As of Oct 2016, the labour force participation rate is 64.5% – almost back to where it was ten years ago. Since Dec 2015, participation has declined sharply and I estimate this resulted in -125k persons leaving the labour force since then. This has been driven by both male and female workers leaving the labour force, but mostly males (-78k males left the labour force over the last year).

Source: ABS

The decline in participation is potentially masking the real rate of unemployment. If over the last year, participation had remained constant, and employment had continued to fall, it would mean that our unemployment rate could have been as high as 6.5% – not the 5.6% that is quoted. The important point here though is that we don’t know exactly WHY people are leaving the labour force. I’ve previously looked at the decomposition of participation declines by age and gender and by state to at least understand whether we are seeing ‘boomers’ retiring from the labour force or if there was a geographic element to the trends. It will be worthwhile revisiting this analysis once updated data is available.

Looking at the state distribution of participation rate changes shows that the bigger changes in participation have occurred in key mining states such as WA and QLD, but participation is down in all states except VIC on an annual basis:-

Source: ABS

Part of the reason for the fall in participation in WA & QLD is likely to be the result of workers transitioning to other states or jobs as the more labour-intensive investment phase of the mining boom continues to wind down. The latest quarter data suggests some improvement with participation higher in VIC, TAS & NT.

Hours worked confirms the FT and PT employment growth

Hours worked continued to grow for PT employed persons and continued to fall for FT employed persons:-

Source: ABS

The trend in hours worked still looks lacklustre. Even though there is growth in PT employed persons, the growth in PT hours worked is only just above the longer term average. The year on year change (decline) in FT hours worked is well below the longer term average growth in FT hours worked.


The implications on spending and taxation are large.

We are a few weeks away from understanding the impact of the weakening labour market on tax receipts at the MYEFO. We are well into the first half of the 2016/17 budget year and wages are growing below growth assumptions, participation was forecast to remain at 65% – it’s now fallen to 64.5% and employment was forecast to grow at 1.75% and so far, on a seasonally adjusted basis, employment has fallen by -0.21%. It’s going to take quite a shift in activity to see these trends reverse and accelerate higher by the end of the financial year.

The household budget/income seems vulnerable right now:-

  • Employment has started declining
  • The ongoing shift from FT to PT employment will likely result in lower household income
  • Continued slowing wage growth, where real wages are not increasing fast enough (on aggregate) to sustain the same level of disposable income

The other important source of spending growth in the economy is credit – and private sector credit (driven by business) is not accelerating. This suggests lower private sector growth and employment growth in the near term.

None of this would be a problem, except that we are more indebted than ever before – and we are now also looking down the barrel of rising interest rates. Rising mortgage interest rates will impact those households with variable rate mortgages. If deposit rates also rise, then it will help those with some interest income.

Credit impulse in Australia turns negative in September 2016

An update on the credit impulse and debt levels in Australia has been posted on the Australian debt and the credit impulse page on this blog. You can read the latest results in more detail, as well as an explanation on measuring the credit impulse on that page.

The growth in new credit for the total private sector has been decelerating since April 2016 and the level of deceleration has been gathering pace over the last five months. In Sept 16, the growth in new credit for the total private sector became firmly negative for the first time since Sept 2013. This is a particularly negative change in the trend.

Source: RBA, The Macroeconomic Project

The level of deceleration in the credit impulse for total private debt, especially over the last three months, has been driven by the deceleration in the growth in new credit for business and, to a lesser degree, the growth in new credit for mortgages. Since Jun 2015, there was at least a slightly accelerating rate of growth in new credit for business (but still low in comparison to other expansions), which was supportive of growth in aggregate demand and broadly supportive of at least more stable employment growth.

The growth in new credit across all sectors (business, mortgages and other personal) is now negative. That means that while total private debt is still growing, growth is no longer accelerating. To generate spending growth or asset price growth, credit growth (and/or income) needs to accelerate.

The annual growth in total private credit as of Sept 2015 was $153.5b. As of Sept 2016, the annual growth in total private credit has slowed to $138.9b – which is $14b lower. The question is whether other sources of spending, such as income or a lower saving rate, are accelerating to offset the deceleration in credit growth.

Indicators of National Income are only available to Jun 2016 at this point – and it’s been mainly in the 3 months since Jun 16 that we’ve started to see growth in new credit start to decelerate at a faster pace.

Source: ABS

From Sept 2015 to Mar 2016, the quarterly growth in Real Net National Disposable Income was accelerating – this has likely been helping to off-set decelerating total private credit growth during that time. Growth in Real Net National Disposable Income has slowed in the latest quarter (Jun 2016), so it will be important to see if this trend continues or not. If National Income continues to slow while credit growth also decelerates, then it’s not likely that we will see growth in aggregate demand accelerating. Growth will be more likely to slow down in the near term and we are more likely to see weaker growth in employment aggregates.

Labour market performance among states is shifting – Feb 2016

The latest labour force data for February 2016 was released last week. Despite the issues around the data, it remains one of the most important pieces of information about the economy. The February release continues to show that employment growth is slowing and has virtually caught up to the slowing labour force growth at a National level. As the gap between employment and labour force growth narrows, the rate of decline in unemployment has been slowing. In this post though, I want to highlight the state based results. There are some sobering insights around the performance of various state labour markets, most notably in NSW. As in a previous post, looking at the state based results is a proxy for tracking the transitioning of the economy. As employment growth in key mining states, such as WA, has been fading, NSW and to a lesser extent, VIC, had been more than offsetting the declines. In fact NSW has accounted for the majority of the National employment growth, especially full time employment, over the last year. This looks to changing.

National overview

National employment growth has continued to slow along with the growth in the labour force. The current cycle of slowing employment growth does not seem to have bottomed yet.

Source: ABS

The narrowing gap between employment growth and labour force growth means that the decline in unemployment is also slowing.

The slowing growth in employment has been driven by slower growth in both full time (FT) and part time (PT) employed persons.

Source: ABS

The slowing of FT employment growth means that both FT and PT employ growth are now at similar levels again.

State labour market indicators

The state employment growth data annual versus latest quarter highlights the degree to which performance among the states has started to shift.

Source: ABS

Over the last year, NSW had ‘over-performed’ in terms of employment growth – the state accounted for 57% of the National growth in employment yet represented 32% of all employed persons. QLD was the only other state that had over-performed on an annual basis in terms of share of employment growth – QLD accounted for 24% of the National annual employment growth and 20% of all employed persons in Australia.

In the latest quarter though, these numbers have shifted. Share of employment growth in NSW is now on par with its share of employed persons – 33% of National employment growth in the latest qtr. QLD now accounts for 33% of National employment growth in the latest quarter, well above its 20% share of employed persons. Vic comes in third, accounting for 28% of National employment growth in the latest quarter, just above its 25% share of all employed persons.

The National employment growth engine has stalled – NSW

The NSW picture becomes more concerning when you break down that employment growth into FT and PT share. In the last year, NSW accounted for a large 86% of the National FT employment growth, well above its 32% share of all FT employed persons.

In the latest quarter, FT employment in NSW has declined.

This is a large turnaround in performance:-

Source: ABS

In the latest quarter, its only VIC and QLD that are making relatively large contributions to National FT employment growth. The other notable state is SA where FT employment has shifted from declining on an annual basis to stabilizing in the latest quarter.

In NSW, the decline in FT employment has not been offset by any increase in PT employment growth either. Furthermore, PT employment growth in NSW appears to have plateaued. The trend looks poor:-

Source: ABS

Despite the fact that FT employment has declined in the last 2 months, total employment is still growing in NSW at just above that of the labour force:-

Source: ABS

This means that unemployment is still falling in NSW. The unemployment rate in NSW has fallen by -0.15%pts in the latest quarter. If you were to just look at the unemployment rate, you’d be misled into thinking that the labour market in NSW was performing OK. But as the gap between employment and labour force growth becomes smaller, it means that the decline in unemployment is also slowing.

VIC – employment growth is still holding on

In VIC, employment data was revised upward from the previous month. The Jan 2016 release had growth of total employed persons in VIC for Jan at 2.0k persons. That Jan growth figure has now been revised up to 4.4k persons. The underlying trend is such that growth in FT employed persons appears to have peaked back in Nov 15 and PT employment growth has been declining since late 2015.

Source: ABS

The overall growth in employed persons in VIC has fallen below that of the labour force and, as a result, unemployment is now growing again in VIC.

QLD – the new growth engine?

QLD is the only other state where employment growth appears to be relatively strong. But the monthly trend shows that PT growth has taken a negative turn. As well, FT employment growth in QLD appears to have plateaued, albeit at a relatively high level:-

Source: ABS

Growth in employment overall remains higher than that of the labour force (that gap is narrowing though), hence unemployment continues to fall in QLD.

Labour market performance in other states

The other states are not showing positive signs of employment growth. Overall employment growth in SA has slowed to that of the labour force in the latest month – this has been driven by a slowdown in growth of PT employed persons (which is no longer growing in the latest month). In TAS, FT and PT employed persons has been declining for over 5 months and that decline has been higher than the labour force growth, so unemployment has started to grow again. Employment has been declining in NT for nine months, in line with the labour force, hence the unemployment change has been small. In the ACT, employment growth has peaked back in Nov 2015, but because the labour force growth has been slowing faster than employment growth, unemployment has been declining.

I’ll cover the labour market in WA shortly.

Unemployment indicators

Across the states, the decline in unemployment has started slowing and, in some states, unemployed persons has started growing again in the more recent time frames:-

Source: ABS

The most notable negative shift has been in VIC. The most notable positive shift has been in WA.

Unemployment rates can be misleading – the case of WA

Quoting an unemployment rate alone can be misleading which is why I never do it on this blog. Take for example, the labour market in WA. According to the previous chart, unemployment has been declining in WA based on the 6mth and latest quarter data. Just looking at the unemployment rate, it appears that unemployment peaked back in Oct 2015 at 6.3%. The unemployment rate in WA has fallen further to 6.1% as of Feb 2016. But this hardly looks like a robust labour market.

In WA, employment is declining, driven by declining numbers of FT employed persons. The growth in PT employed persons has not offset the decline in FT employed persons.

The reason why unemployment is falling in this scenario is that the labour force is declining faster than employment:-

Source: ABS

The declining labour force is the result of falling population and participation in WA. In other words, workers are leaving the state due to a lack of job opportunities, especially in mining. As the size of the working population shrinks, so does demand (for everything) and so does tax revenue.

Labour force – population shifts between the states

Part of what is driving some of these state trends is the shift that has taking place in labour force growth by state.

Source: ABS

The shift from NSW-led growth in the labour force to VIC and QLD-led in the more recent quarter is obvious. Its unclear what is driving slowing labour force growth in NSW. The problem facing VIC now is that employment growth isn’t keeping pace with this growth in labour market – hence the growth in unemployed persons. This will be one to watch.

In QLD, the growth in the labour force has remained above that of employment growth.

Also worth mentioning is WA (as well as TAS and NT) – where the labour force has declined in the latest quarter.

At a National level, there are two reasons why the labour force growth is slowing:-

Source: ABS, The Macroeconomic Project

The first is that underlying population growth has slowed. The chart above shows that what population adds to the labour force has slowed from over 23k persons/month to just over 15k/month. For the moment, I’m ignoring the last two months estimates of population growth in the chart above – they are always low.

The second is that changes in labour force participation are back to detracting from the labour force i.e. people are leaving the labour force. In fact, in the latest quarter, participation rates only increased in QLD and VIC and held steady in SA.

Sample rotation

This slow-down in the labour market has appeared on the radar quite quickly. It’s worth noting that it could be the result of changes to the ABS survey rotation (the incoming survey group having a lower employment to population ratio than the outgoing sample group), rather than a marked deterioration in activity during this time. I’ll remain cautious and keep checking in each month to see how the trends are shaping up.

There is clearly a shift occurring in the dynamics of the state labour markets. This is important because NSW has been such a large and positive driver of the improved National labour market over the last 18 months. It appears that NSW is no long that employment growth engine. So far, it’s not clear that employment growth in the better performing states of QLD and VIC will make up the difference.

Internet job vacancies point to low employment growth – January 2016

The monthly internet job vacancies data is another indicator of future employment growth. This month internet job vacancies continued to grow at a steady pace of +0.4% trend and 0% seasonally adjusted. While there has been a trend of growing vacancies, it does appear to have slowed over the last few months. This does not suggest high, or accelerating, growth in employment over the next few months. But the internet vacancy index has been tracking along like this for a while now – and employment growth continued to outperform.

Source: Dept of Employment 24 Feb 2016 (left hand axis = # of vacancies index)

The Dept of Employment gathers the data on job ads from 3 main job search websites – CareerOne, Seek and Australian Job Search (AJS). It suggests that the index in early 2015 was understating the growth in vacancies:-

“Over the five months to August 2015, there was a reduction in the number of new job advertisements listed on the Australian JobSearch (AJS) website. This may have been as a result of the transition of employment services from Job Services Australia to jobactive. The number of job advertisements listed on AJS began to recover in September; however, the data in this report should be used with caution.” Source: Dept of Employment, 24 Feb 2016

However, the current level of the internet vacancy index (IVI) is lower than the two previous peaks of 2006-08 (45% lower) and 2009-11 (20% lower). Comparing this to employment growth at those same peaks shows that while the periods of employment growth line up with the periods of increase in the IVI, the relative size of the growth during those periods does not correlate at all:-

Source: ABS

For example, the latest peak in annual employment growth exceeded the previous peak in late 2010 by 4% – yet current vacancies are running at 20% below that corresponding peak in late 2010. It’s difficult to reconcile the relative growth of the two data points.

An interesting aspect of the IVI report is the regional internet vacancy index. It provides some insight into the distribution of internet job vacancies and it seems directionally in line with the state-based analysis of employment growth in my previous post – Is the performance of the labour market really that good?

Change in internet vacancies over the year to January 2016

Source: Dept of Employment

According to the report, the largest % increases in vacancies over the year were recorded in:

“Southern Highlands & Snowy NSW (up by 34.4%), Canberra & ACT (26.1%), Bendigo & High Country VIC (23.4%), NSW North Coast (21.8%), and Ballarat & Central Highlands (21.6%)”

The largest % falls in vacancies over the year were recorded in:

“Bathurst & Central West NSW (down by 44.8%, albeit from a low base), Port Augusta & Eyre Peninsula SA (18.6%), Perth (15.9%), North West Tasmania (13.7%) and Central Queensland (12.8%)”

VIC is the only state where all regions saw an in increase in the IVI over the last year – yet employment growth had been subdued in the last year compared to previous peaks. NSW and QLD were mostly all positive. ACT was positive. But in most regions in WA the growth in the IVI was negative. In all regions in SA, TAS and NT the IVI was negative for the year.