Total employment: 28.9k from 38.5k (revised from 39.9k), unemployment rate: 5.1% from 5.2% (unrevised 5.2%), participation rate: 66.0% from 66.0% (unrevised 66.0%)

The Labour Force Survey surprised again in December with a solid 28.9k gain in total employment following a solid 38.5k gain in November (revised from 39.9k). The market median forecast was 10k (a below trend estimate) with Westpac forecasting a fall of –5k. The gain in November and December has boosted the annual pace which has lifted from 2.0% in November to 2.1% in December. In addition, the six month annualised pace has also lifted from 1.6%yr in October to 2.0%yr in December. Looking through the monthly volatility in the last three months the average monthly gain lifted from 9.0k in October to 9.1k in November then 14.5k in December. Compared to the softening in domestic demand we observed through the second half of the year, employment appears to have had a tail wind with the pace of employment growth picking up.

In the month unemployment fell to 5.1% (5.07% at two decimal places) from 5.2% (5.17% at two decimal places). Unemployment (in three month average terms) trended higher in Q2, from 5.1% to 5.2% then held at 5.2% through Q3 and Q4 but it was improving through Q4 as the monthly unemployment rate peaked at 5.3% in October to only fall back to 5.1% in December. Participation was flat at 66.0% and also flat at two decimal points of 65.98% which resulted in an around trend rise of 16k for the labour force.

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The mix of employment did, however, paint a slightly softer picture of the labour market than the headline numbers. All of the gains were in part-time employment, which lifted 29.2k while full-time fell –0.3k. This continues the trend for an outperformance of part-time employment to full-time employment and female employment compare to male employment. In the moth total hours work printed a very solid gain of 0.5%, following a sound 0.2% gain in November, boosting the annual pace to 2.3%yr from 1.7%yr. The growth in hours worked is now outpacing that for total employment (2.1%yr) even with the gains for part-time employment (2.7%yr) significantly outpacing that of full-time employment (1.7%yr) highlighting strong growth in part-time hours worked.

This month the state data revealed the strength of employment was focused in NSW and Victoria even if the unemployment rate drifted higher in the latter. The largest increases in employment were in NSW (+20.6k) and Victoria (+10.3k). The only significant decline was in WA (–5.3k.). Even with the robust rise in employment, unemployment in Victoria lifted 0.3pppt to 4.9% as there was a solid 0.3ppt rise in participation to 66.6%. The unemployment rate fell in all the other states with the largest falls in Queensland (—0.6ppt to 5.7%) and Tasmania (–0.5ppt to 5.5%). Unemployment fell 0.1ppt to 4.5% in NSW. The participation rate rose 0.2ppt in NSW to 65.5% and fell –0.6ppt in Queensland to 65.6% and –0.5ppt in WA to 67.7%.

Today’s update has continued the positive labour market surprise through Q4. It is Westpac’s forecast that on the back of the moderation in domestic demand we expect the labour market to weaken from here resulting in a modest, gradual rise in unemployment and underemployment. Even with the recent strength in employment, the Australian labour market is a long way from the RBA’s full employment aim of 4.5%.

In our view, while rate cuts along with the Government’s tax offset payments should help to support demand, we think it will be insufficient to get economic growth moving back to trend or above in 2020. We continue to see the leading indicators of employment point to a near term softening in employment growth. Our Jobs Index (based on the various business surveys) suggests that employment growth is set to slow to around 1¾%yr by Q2 2020, unemployment expectations have been trending higher since early 2019 (pointing to expectations of slower employment growth as well as rising unemployment), ANZ job ads is down around 19% in the year to December while the ABS Job Vacancies series is down 1.9%yr in the September quarter.

Westpac is expecting employment growth to moderate in early 2020 and while participation is expected to decline it will only provide a partial offset so we hold to our view that unemployment will drift higher through the first half of 2020.


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