Labour Force

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.


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.

Declining consumer prices – March qtr 2016

Last week, the ABS released the March 2016 quarter CPI data. This was attention grabbing stuff with headline CPI falling -0.2% in March. Suddenly, we were in the grip of deflation and many news outlets were quick to latch onto this story. I’m the last person to joke about deflation. Asset price deflation is a very serious threat to our country because we are so highly leveraged and our financial system is ‘all-in’ on housing. I’m also less positive than most about economic growth and recent developments in the labour market. But not much time was spent looking through the CPI data before jumping straight to the “deflationary” headlines last week.

The deterioration in CPI growth between the last two quarters from +0.4% in the Dec quarter to -0.2% in the Mar quarter can be attributed to categories that have more external/international exposure, rather than categories that are more of a reflection of domestic conditions.

That doesn’t mean that domestic factors haven’t played a role in the slowing of CPI growth over a longer period of time. The economy has been growing at below trend/potential as it transitions from the peaks of the mining investment boom and especially since the terms of trade (ToT) started to unwind. This has been highlighted by the RBA for several years now and policy settings have been focused on supporting demand during this transition. But is this CPI print a reflection of how demand in the economy has deteriorated in the latest quarter?

Headline versus core CPI measures

The RBA does not tend to rely on the headline CPI figure in evaluating consumer price pressures for interest rate policy. The focus is more on measures of core inflation – the weighted median and the trimmed mean. Both of these remove the volatile items to provide a measure of underlying strength in consumer prices within the economy.

Annual growth in the trimmed mean has slowed to its lowest level and quarterly growth was +0.2% in March. Annual growth in the weighted median also slowed to its lowest level of growth of +1.4% and +0.1% for the quarter. Both measures are outside of the 2-3% average inflation rate.

Source: ABS

Both of these measures have been trending lower for a while and the RBA has tended to ‘look through’ this slowing of consumer price growth. Throughout 2015, there were signs of improvements in the Australian labour market, despite lower wage growth, moderate economic growth and a weakening AUD. From the April board meeting, the RBA assessment was for “reasonable prospects for continued growth in the economy, with inflation close to target” (RBA Minutes April 2016). That was four weeks ago.

Do we still have ‘reasonable prospects for growth’?

In short, when demand conditions are weak, inflationary pressures are likely to be less. In other words, softer price growth, or price declines, are another way of assessing the strength of demand in the economy. The question is whether this CPI decline is indicating a slowing in domestic demand conditions enough to warrant further interest rate cuts.

The tradable v non-tradable CPI series provides the most important insight on price pressure in the economy

An insightful way of assessing the source of consumer price pressures is to look at the tradable versus non-tradable series of the CPI. Consider the example of falling fuel prices throughout 2015. Fuel prices have fallen globally and aren’t necessarily an indicator of a fall in our own domestic demand – we are a price taker in such commodities.

I’ve referenced this RBA paper before and its worth revisiting here – The Determinants of Non-Tradables Inflation. There are several important points:-

“Non-tradable items are exposed to a low degree of international competition. This includes many services that can (in most cases) only be provided locally, such as hairdressing, medical treatment or electricity. The prices of these items should be driven mainly by domestic developments. Therefore, inflation for non-tradable items should provide a relatively good sense of the extent to which demand exceeds (or falls short) of supply in the domestic economy.”

“Tradable items are much more exposed to international competition. This includes many imported manufactured goods such as televisions and computers, as well as some food items and services such as international travel. The prices of these items should be less influenced by conditions in the Australian economy, and more affected by prices set on world markets and fluctuations in the exchange rate.”

And a word of caution about these classifications:

“The RBA acknowledges that in practice, drawing a precise distinction between a tradable and a non-tradable item is difficult. The exposure of an item to international competition is both complicated to measure and a matter of degree. The Australian Bureau of Statistics (ABS) classifies an item as tradable where the proportion of final imports or exports of that item exceeds a given threshold of the total domestic supply. Any item not meeting this definition is classified as a non-tradable. In general, many goods are classified as tradable while nearly all services are classified as non-tradable.”

Throughout the last several decades, annual non-tradable inflation has grown at a higher rate than tradable inflation in Australia:-

Source: ABS

Since mid-2013 though, non-tradable inflation has started to abate as the ToT has unwound and as income and wage growth has slowed.

When we break down the growth in tradables versus non-tradables to a quarterly basis, it becomes clear which area contributed to the much lower CPI print in the March quarter.

In the latest quarter, tradable CPI declined by -1.37%. That is a significant fall in just one quarter. On the other hand, non-tradable inflation increased by +0.45% in the quarter – but this is also still below the average for the last several years.

Source: ABS

The trend over the last 12 quarters highlights the volatility of the tradable series (this is also evident in the annual series).

We can go a bit deeper. In the latest quarter, the index of tradable categories contributed -0.55% pts to the -0.22% decline in headline CPI. The non-tradable categories contributed +0.33% pts to the -0.22% decline.

Source: ABS

Looking at CPI from this perspective suggests that it is less likely that the shift to a negative CPI in the March quarter came as a result of deterioration in demand, or events, within the domestic economy. It appears most of the ‘deflationary’ pressure came from those categories that are more exposed to international competition.

Where did the tradable deflation come from?

Tradables reversed from contributing +0.19% pts to CPI in the Dec quarter to detracting -0.55%pts to CPI in the March quarter. Many categories classified as tradable contributed to this reversal – there were twenty six (26) categories where the change in contribution slowed between the two quarters – that’s over half of the categories classed as ‘tradable’, so the slowdown in price growth was broad. The largest contributors to this reversal came from four (4) main categories:

  1. Tobacco price index in the Dec quarter contributed +0.26%pts to CPI growth. In the Mar quarter, price growth slowed and only contributed +0.03%pts. This was the single largest contributor to the -0.78%pt decline in tradable inflation between the two quarters. The tobacco federal excise tax biannual tax indexation came into effect 1st Feb 2016.
  2. Automotive fuel price index contributed -0.18%pts in the Dec quarter. This decline accelerated to -0.31%pts in the Mar quarter. Fuel prices look to have stabilized for now.
  3. Int’l travel accommodation price index contributed +0.6%pts to CPI growth in the Dec quarter. This reversed to detracting -0.5%pts to CPI growth in the Mar quarter.
  4. Fruit price index contributed -0.03%pts to CPI growth in the Dec quarter. This accelerated to -0.13%pts in the Mar quarter.

These top four categories were -0.57%pts of the -0.78%pt deterioration in price growth between the two quarters. There were 12 categories where price growth accelerated and 9 categories where there was no change in growth between the two quarters.

Non-tradable growth has been low in historical terms throughout 2015, but did pick up in the March 16 quarter. Nearly half of all categories classed as non-tradable recorded an acceleration in price growth in the latest quarter – this acceleration was broad based. The largest contributors were medical and hospital charges, secondary education, childcare, household fuels including gas and restaurant meals. There were ten non-tradable categories where price growth slowed between the two quarters, but there was only one large one – domestic holiday and travel, which went from adding +0.16%pts to CPI in Dec quarter to detracting -0.05%pts in the Mar quarter.

The notable slow down on the domestic inflation front has been from a slowing contribution from new dwellings and rents. This has been a function of slowing income/wages growth, a tightening of lending standards for housing to curb riskier lending by banks with regard to investor/interest-only mortgages and a general slow-down in housing demand, especially in key mining areas.

What is it saying about the economy?

The split between tradable and non-tradable inflation over the March and Dec quarters suggests that the decline in CPI was not led by the domestic economy. But growth in non-tradable inflation has been lower than average for a while and it is fair to say that this is a reflection of spare capacity in the economy.

The RBA has asserted that ‘transition’ (from mining) will be assisted by wage restraint, stimulatory interest rate policy and a lower dollar (“Managing Two Transitions”, Deputy Governor Philip Lowe 18 May 2015). Based on this, there are several important considerations for the RBA in assessing interest rate settings:-

Wage growth and the labour market – over the last 12 months, spare capacity in the labour force especially, has been reduced, as evidenced by an improved LFPR, a decline in the unemployment rate during 2015 and generally stable levels of GDP growth. Some of the lower wage pressure can be traced back to a rotation out of much higher paying mining-related jobs that may no longer exist into more average-wage jobs. From the last board minutes, the RBA expected a softening of labour market conditions, given the improvement throughout 2015. My last labour market update highlighted that momentum in the labour market is waning. Without accelerating employment growth, lower wage growth will place a brake on domestic spending and demand.

Housing and credit growth is likely to be an issue. A crack-down on lending standards, a focus on increasing bank capital buffers, and in some cases higher overseas funding costs, has led many lenders to raise mortgage rates and slow their investor mortgage lending – the opposite of stimulatory monetary policy. This is going to weigh on the RBA decision making. House price appreciation has been slowing and is falling in some markets. It’s another story altogether whether banks pass through any further rate cuts.

A lower AUD has been one of the key pillars to support the shift toward non-mining industries especially services exports. The strengthening in the AUD/USD since February could be cause for concern for the RBA. This has been partly driven by the US Federal Reserve putting the brakes on further US interest rate hikes. This has weakened the US dollar against most major currencies, but has also helped to stabilize global financial markets.

The minutes from the April meeting on monetary policy certainly opened the way for monetary policy to be “very accommodative”. The ultimate question is whether another rate cut is the stimulus that the economy needs to kick start growth again. Overall lower-than-average trend growth persists, not just in Australia, but globally. The RBA Governor asks whether we are ‘reconfiguring’ to this lower trend growth (“Observations on the Current Situation”, Glenn Stevens, 19 April 2016):

“That would help to explain why ultra-low interest rates are not, apparently, as successful in boosting growth in demand as might have been expected. The future income against which people would borrow looks lower than it did, not to mention that the current income against which some already had borrowed has turned out to be lower than assumed”

“If we could engender a reasonable sense that future income prospects are brighter, that there is a good return to innovation and ‘real economy’ risk taking, and so on, then people might use low-cost funding for more productive purposes than just bidding up the prices of existing assets”

In addressing the issue of lower trend growth, the RBA is also pointing to the need for more action on other policy fronts to support monetary policy.

“It is surely time that policies beyond central bank actions did more in this regard”

There may not be enough evidence just yet for another rate cut, but it’s likely to be a matter of time.

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.

Is the performance of the labour market really that good? January 2016

The labour force data continues to raise more questions about its own methodology than it answers about the performance of the labour force. There remains a very wide 95% confidence interval around the ‘true’ change in employed persons between January and December, which is somewhere between a -65k decline in employed persons and a +50k increase in employed persons. But the 95% confidence interval around the ‘true’ unemployment change figure is now just skirting zero at the lower bound, between -9.6k and +70k. So while the interval is wide, it’s starting to be more likely that unemployment increased in January.

There is a different way to present the data to get an idea of how the market is performing. In this post, I will focus on the difference between the monthly change in employed persons and the monthly change in the labour force during the last year. The reason for looking at the labour market in this way is to gain a different perspective on the drivers behind changes in unemployment and to understand the ‘health’ of employment growth over time – is it accelerating or slowing? This provides a different view on the performance of the labour market by state. All does not seem well in NSW, our main employment growth engine. The labour markets in VIC, WA, TAS and NT are also showing some signs of deterioration. The most positive performance is in QLD and ACT, with SA still mixed.

Overall annual employment growth remains over 300k persons

At this point in time, the labour market still looks like it is performing above average on an annual basis, with employment growth well above the 10 year average for January (+186k). Growth in full-time (FT) employed persons continues to exceed growth in part-time (PT) employed persons and total unemployed persons continues to decline across all time periods.

Source: ABS

What you can’t see from this chart is that the annual growth in employment is skewed to one state, with NSW accounting for 56.3% of the National annual growth in employed persons. NSW represents 32% of all employed persons in Australia.

Unemployment continues to fall, but not in all states

The good news is a bit more limited when it comes to the change in unemployed persons, especially when you break it down on a state by state basis and when you start to look at the performance over more recent time periods. It’s really only NSW, SA and QLD where unemployed persons has continued to fall in any large and meaningful way throughout the year (looking at time periods of six months or less).

It looks like unemployment has started falling in WA in the last quarter as well, but this is a function of the labour force growth slowing faster than employment growth. I’ll come back to this point in more detail shortly.

Source: ABS

The mixed performance of total unemployed persons across the states raises some questions of just how widespread this strong labour market performance really is.

When employment grows faster than the labour force, unemployment falls

This is true even when employment growth is slowing faster than labour force growth, which is what has been happening at a National level over the last 5 months:-

Source: ABS

Employment growth has exceeded labour force growth throughout most of 2015. The positive gap between the two measures since August 2015 equals the decline in total unemployed persons during that time of -28.9k persons.

The trend shows that both the growth in employment and the growth in the labour force has been slowing during that time. Whether this is an enduring trend or not remains to be established. But the gap between the two has been narrowing since October 2015 – which means employment growth is slowing faster than the labour force. If this trend continues over the next few months, unemployment could start to grow again on a National basis.

As an aside, why is labour force growth slowing?

The analysis above looks at the labour force as the sum of all employed persons plus all unemployed persons that are looking for work. Another way to view the labour force is by 1) contribution from population growth and 2) contribution from changes in participation. It seems we are seeing less contribution from participation growth over the last six months:-

Source: ABS

The contribution from growth in participation has more than halved since peaking in August 2015. In the last six months, participation has fallen in VIC, SA, WA, TAS and NT.

I’m less concerned with the apparent drop off in population growth over the last two months. This seems to be a regular feature of the data. But there has been a slow-down in what underlying population growth has added to the labour force since its peak in Feb 2008.

But we live in a country where economic fortunes have differed greatly among the states and is in the process of shifting from the mining-led states back towards to the eastern seaboard. It’s worthwhile looking at each state in a bit more detail to understand this transition.

NSW – the main engine driving the so-called post-mining transition is sputtering

The state of NSW has been the strongest performing state in terms of employment growth during 2015. As mentioned above, NSW alone accounted for over 56% of the annual National employment growth in 2015. The current level of annual growth in employment in NSW is extremely strong in historical terms as well – it’s the highest level of annual employment growth on record for NSW. Previous peaks were between +110k and +120k growth in annual employment. The current level of annual employment growth in NSW is +170k employed persons (Jan 2016). This is almost on par with the National 10 year average in January.

The monthly change in employment growth in NSW has now halved over the last six months from the peak of +17.3k growth in employed persons in May 2015 to +7.9k growth in employed person in January 2016.

Growth in FT employed persons had far exceed growth in PT employment over the last year, with FT employment growth of +142k versus PT employment growth of 28k persons. This has reversed as of December, with PT employment now growing faster than FT on a monthly basis. As of January, FT employment growth has slowed to a very low +2.6k persons – down from the peak of 15.9k as recently as July.

What has ‘saved’ unemployment from growing in NSW is that the labour force growth has also slowed – faster than the slow-down in employment growth.

Source: ABS

Since the peak in labour force growth in June 2015, total unemployed persons has actually declined by 20k in NSW. While this is great news, the gap between the measures is narrowing. This state will be important to watch.

VIC – labour market is deteriorating

There are two problems in VIC. The first is that employment growth during 2015 has been subdued. It’s a big state, representing 25% of employed persons, yet only accounted for 14% of employment growth in 2015. Most of the reason for this seems to be that PT employment has been slowing and is now declining (last 4 months). There are early signs that FT employment may have also peaked in this current cycle. For a short time, unemployment was declining. Which brings me to the second problem. Employment growth has now slowed faster than labour force growth and unemployment has started to increase again in the latest quarter.

Source: ABS

It’s a negative pattern – employment growth is slowing from a low peak and unemployment has started to increase again over the last 3 months.

QLD – labour market performance is good

During 2015, QLD had made a bigger contribution to employment growth than VIC, accounting for 25% of the annual National employment growth. For most of 2015, employment has grown faster than the labour force in QLD resulting in lower unemployment. The trend of the employment growth looks positive too – it has been accelerating. The only thing slowing down employment growth in QLD has been lower PT employment growth. Growth in FT employment is still accelerating.

Source: ABS

Unemployment in QLD continues to fall, but this has slowed to zero in the last two months.

SA – performance has been mixed

Employment in SA has continued to grow, with recent growth on par with previous peaks in growth. But most of the current employment growth has been in PT employed persons, whereas FT employment growth was only positive for the last 4 months of 2015. But at least the growth in PT employment was still higher than the growth in labour force – and unemployment has fallen as a result.

Source: ABS

WA – unemployment falling, but it’s hardly a robust market

This is the frontline of the slowing mining investment engine. While employment has started growing again in the last half of 2015, it is well below recent growth levels.

All of the growth has been PT in nature as well. FT employed persons has declined by 24k persons in the last year, whilst PT employed persons has increased by 28k. Cost cutting continues in earnest, but at least there are PT jobs available.

The decline in the level of unemployed persons is mostly the result of slowing growth in the labour force, rather than strong growth in employment.

Source: ABS

TAS – the labour market has deteriorated

The annual rate of employment growth in TAS has turned negative over the last 3 months. Only for a short period during 2015 was employment growth positive and above the level of growth in the labour force. FT employment continues to decline (-2k FT employed persons), but at least in the last few months there has there been some small level of growth in PT employed persons (not enough to offset the falls in FT employment though).

Source: ABS

Unemployment has started to increase again in the last few months of 2015. The current level of unemployed persons, 17k persons, whilst still elevated, remains below the 2013 peak of 20k persons.

NT – employment is declining and unemployment is miraculously falling

The mining transition continues to hurt NT, with employment declining in the latter half of 2015. Even though employment has been declining on a monthly basis, it hasn’t been declining as fast as the labour force. As a result, the level of unemployment has actually declined over the last six months.

Source: ABS

Just looking at a declining rate of unemployment wouldn’t give you the full story about the labour market in NT.

ACT – labour market is improving

The level of employment growth in ACT had been consistently low throughout 2012-2014. But since the latter half of 2014, and in the latter half of 2015, employment growth has started to accelerate. The current level of employment growth is not high by historical standards, but it’s a good sign that it is accelerating and this is different to many other states. Unemployment has grown on an annual basis because the labour force size has grown faster than employment.

Source: ABS

Another positive sign is that FT employment has overtaken PT employment growth as of October 2015.

It doesn’t take much scratching below the surface to see that in most states, the labour market is no longer as strong as the annual figures suggest. It also highlights the need to review a range of different measures, rather than just relying one figure at a point in time as a gauge of labour market strength. The big watch out at the moment is slowing employment growth relative to the labour force across the bigger population states, especially NSW.

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.


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.


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.


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.