Daily Commentary BY THE CURVE TEAM –

Total Employment and the Unemployment Rate Both Fall

17th of August, 2018

Today’s headline doesn’t make a lot of sense but that was what the monthly employment data from the ABS showed yesterday as the volatility in the data series continued.

Volatility in the month to month employment data is something the market has become accustomed to over the last couple of years but yesterday’s data release was one of the stranger outcomes.

Total employment growth fell in July, falling by 3,900 jobs. This shouldn’t have come as a total surprise given the much larger than expected 58,200 gain the prior month. To put in perspective how big the previous month’s gain was, it is the equivalent of the US economy adding more than 750,000 jobs in one month. That is almost 4 times the average for the past few years.

Despite the fall in total employment for the month, the unemployment rate continued to edge down. Rounded to one decimal place, the unemployment rate fell to 5.3%, its lowest level in almost 5 years. This was due to the fact that the participation rate also fell and was down 0.2% from the previous month to now be at 65.5%

To make sense of the employment data we really need to look through the monthly data and focus on the trend. Luckily the ABS reports both seasonally adjusted and trend data.

The trend data showed a gain in employment over the month of 26,900 with an employment and participation rate both unchanged at 5.4% and 65.5% respectively. That outcome fits much more closely with the leading indicators or employment such as the employment index from the monthly business survey and job ads.

Overall what the data tells us is that employment growth remains relatively strong but not quite as strong as it needs to be to make solid inroads into the slack in the labour force. This was reinforced by the wages data on Wednesday. Until we see not just unemployment but underemployment start to fall more substantially, the wage growth and inflation the RBA is looking for will remain elusive.

David Flanagan

Director - Interest Rate Markets