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Employment: +38.5k (from –5.9k). Unemployment Rate: 4.1% (from 3.9%). Participation Rate: 66.7% (from 66.6%).

In April, the level of employment rose by +38.5k (0.3%), stronger than Westpac’s forecast for +20k and the market consensus for +23.7k. That follows a fairly volatile opening quarter, with gains ranging from +11.6k in January, to +118.2k in February and –5.9k in March. On a three-month average basis, annual employment growth has held broadly steady at 2.8%yr over the past four months. Still, employment’s current pace remains stronger than 2.0%yr to 2.5%yr ‘norm’ observed in the years prior to the pandemic.

Labour demand has certainly cooled over the past year, but it has only translated into a gradual softening in employment growth. Easing labour demand appeared more clearly in average hours worked over the second half of last year. Since then, it has shown few signs of extended weakness.

In the month, growth in the working age population kept pace with that of employment, seeing the employment-to-population ratio hold steady at 64.0%. While we anticipate growth across both the working age population and employment to moderate over the remainder of the year, the former will likely continue to outstrip the latter, which will see the employment-to-population ratio gradually fall over 2024 after having moved broadly sideways near historic highs over much of 2023.

It is also worth highlighting that the ABS have provided more information around the recent behaviour of seasonally adjusted estimates in the Labour Force Survey. The main takeaway is that recent volatility is likely to be temporary, reflecting changes in the dynamics and behaviours of people and businesses within the context of a historically tight labour market. Elements of that was seen in today’s results with respect to unemployment (below) and was certainly present in many estimates around the beginning of the year. With more data over time, the nature of the changes in underlying dynamics will be better understood.

Unemployment Rate

Labour force participation was a little stronger than expected, with the participation rate moving higher from 66.6% in March to 66.7% in April. That implies an appreciable lift in the size of the labour force, up +68.8k. Given the +38.5k lift in employment, that means there was a rise in the number of unemployed persons (+30.3k), which saw the unemployment rate move from 3.9% to 4.1% (4.05% to two decimal places).

The ABS noted that the increase in the number of employed persons partly reflected more people than usual indicating they had a job that they were waiting to start. This is a dynamic that has appeared more prominently in ‘holiday’ months since the reopening and has had an influence in driving month-to-month swings in the unemployment rate. Should these individuals move into employment next month, there is room for the unemployment rate to round back down in May.

Given the upward revision to March (from 3.8% to 3.9%), the impact of the above seasonal dynamics, and the strong round-up in April (4.05% reported at 4.1%), the overall change in unemployment in the month does not represent a material surprise to expectations for the month alone.

Hours Worked

The total number of hours worked has been soft over the last year, notwithstanding the increase in the number of people employed. This continued in April, with the number of hours worked remaining unchanged compared with March. In annual terms, hours worked declined by 0.1%. This was the first annual decline since the pandemic (February 2021).

Hours worked can be volatile from month to month, particularly now given the shift in seasonality. ABS trend data tries to remove this volatility and provide an estimate of the underlying trend. This shows that hours worked declined from June 2023 and started to turn in November 2023. It has now surpassed the June 2023 level. Over this same period employment has increased by around 1.8%.

Robust employment growth coupled with soft hours worked outcomes implies that the average number of hours worked has declined. This is indeed what we have observed but again, this started to turn since November 2023. Average number of hours worked have returned to pre-pandemic levels (January 2020).  These dynamics suggests that the labour market went through a significant adjustment in the second half of 2023 and has now started to normalise.

The change in the number of hours worked over April differed across the states. Strong increases were recorded in Tasmania (+5.8%) and Queensland (+1.6), with declines were recorded in Western Australia (-1.8%), South Australia (-0.8%), Victoria (-0.3%) and NSW (-0.2%).

Potential Labour Supply

The bounce back in international students and immigrants returning to Australia when borders reopened was larger than anyone expected. As a result, the working age population grew at a record pace for most of last year. This now looks to have peaked, in the month of September 2023 when looking at the annual growth rate. Despite this, the change in the working age population continues to outpace employment. We expect this will continue to occur going forward. This is consistent with a loosening in labour market conditions – with the unemployment rate drifting higher and the employment to population ratio moving lower.

Other Labour Market Measures

Consistent with the soft hours worked outcome some other labour market indicators also softened over the month of April.

The underemployment rate, which measures the share of employed workers who are willing and able to work more hours, ticked up to 6.6% in April. Over 2023 the underemployment rate has drifted higher in trends terms, coinciding with the slowdown in economic activity.

The underutilisation rate, which combines the unemployment and underemployment rates, jumped to 10.7% - the highest rate since January. Consistent with the underemployment rate, the underutilisation rate has drifted higher in trends terms, from 9.5% in late 2022 to 10.3% in March 2024 (trend terms).

Outlook

The tone of today’s survey, in relation to its implications on the outlook, is not materially different from last month. The dynamics which drove a clear softening in conditions over the second half of last year – namely the ‘correction’ in average hours from elevated levels and a slowdown in employment growth – have not been as strong recently. Looking past the considerable month-to-month volatility, the labour market has generally held in robust health with signs of emerging slack being gradual at best.

As we have emphasised before, the extent to which labour demand will continue to cool over the near-term will critically depend on the interplay between headcount and hours. We continue to anticipate that conditions will gradually soften over the course of this year, as employment growth continues to soften and the unemployment rate ticks up to a quarter-average of 4.3% by year-end.

Key Highlights

• GBP/USD started a decent increase and climbed above 1.2600.
• A key bullish trend line is forming with support at 1.2580 on the 4-hour chart.
• Gold prices cleared the $2,375 resistance to move into a positive zone.
• USD/JPY dipped again and traded below the 155.00 level.

EUR/USD Technical Analysis

The British Pound started a decent increase above the 1.2550 resistance against the US Dollar. GBP/USD cleared the 1.2600 resistance to move into a positive zone.

Looking at the 4-hour chart, the pair even settled above the 100 simple moving average (red, 4-hour) and tested the 200 simple moving average (green, 4-hour). There was a move toward the 1.2700 level.

A high was formed at 1.2700 and the pair is now consolidating gains. The first major resistance is near 1.2720. A clear move above the 1.2720 resistance might send it toward the 1.2750 level. Any more gains might call for a move toward the 1.2880 level in the near term.

Conversely, GBP/USD might correct gains. Immediate support is near the 1.2665 level. The first major support is near the 1.2620 level. The next major support is at 1.2600.

There is also a key bullish trend line forming with support at 1.2580 on the same chart. If there is a downside break below the 1.2580 support, the pair might test 1.2535 or the 100 simple moving average (red, 4-hour). Any more losses might send the pair toward 1.2450.

Looking at Gold, the bulls came into action and they were able to push prices toward the $2,400 resistance zone.

Economic Releases

• US Initial Jobless Claims - Forecast 220K, versus 231K previous.
• US Industrial Production for April 2024 (MoM) – Forecast 0.1%, versus 0.4% previous.

Australia employment grew 38.5k in April, well above expectation of 25.3k. Full-time jobs fell -6.1k while part-time jobs rose 44.6k. Unemployment rate rose from 3.9% to 4.1%, above expectation of 3.9%. participation rate rose from 66.6% to 66.7%. Monthly hours worked was unchanged. Number of unemployed rose 30.3k or 5.3% mom.

Full Australia employment release here.

Japan's GDP contracted by -0.5% qoq in Q1, slightly worse than the expected -0.4% qoq decline. On annualized basis, GDP fell by -2.0%, missing forecast of -1.5% drop.

Private consumption, which makes up over half of the Japanese economy, decreased by -0.7%, exceeding anticipated -0.2% decline. This marks the fourth consecutive quarter of decline, the longest streak since 2009.

Capital spending fell by -0.8%, slightly more than the expected -0.7% decrease. This was the first decline in two quarters.

Exports declined by -5.0%, despite ongoing support from inbound tourism, while imports fell by -3.4% amid reduction in energy imports. The trade figures reflect a broader slowdown in global demand, which is impacting Japan's export-driven economy.

Chicago Fed President Austan Goolsbee, in a Marketplace interview, emphasized the importance of a significant decline in housing inflation to achieve the Fed's 2% overall target.

"It would be hard for me to see that we could get to the 2% overall target unless house prices, inflation comes down substantially from where it is right now," Goolsbee stated.

Despite the current challenges, Goolsbee remains optimistic, noting, "I'm still both optimistic and my read of the evidence is that that is going to happen." He pointed to yesterday's CPI numbers, which show some decrease in housing costs, as a positive sign.

However, he cautioned that if this trend does not continue, Fed will need to delve deeper to understand the underlying issues.

Minneapolis Fed President Neel Kashkari stated overnight that Fed likely needs to keep interest rates at the current level for "a while longer," raising questions about how much they are restraining the US economy.

He highlighted that the "biggest uncertainty" is understanding the exact amount of "downward pressure" monetary policy is putting on the economy. This uncertainty means Fed "probably need[s] to sit here for a while longer" until there is more clarity on where "underlying inflation is headed" before drawing any conclusions.

He remarked on the surprising "resilience" of the economy, suggesting that current interest rates might mean "we're putting one foot on the brake and not two."

• Gold broke daily down channel
• Likely to reach resistance level 2415.00

Gold recently broke the resistance trendline of the narrow daily down channel from April, which enclosed the previous ABC correction (4).

The breakout of this down channel accelerated the active intermediate impulse wave (5) – which belongs to the higher order impulse sequence from October.

Given the predominant daily uptrend, Gold can be expected to rise further toward the next resistance level 2415.00, which reversed the price twice in April.

• AUDUSD broke key resistance level 0.6650
• Likely to reach resistance level 0.6760

AUDUSD currency pair recently broke the key resistance level 0.6650, which has been reversing the pair from the start of March.

The breakout of the resistance level 0.6650 coincided with the breakout of the 61.8% Fibonacci correction of the downward correction from the end of December – which accelerated the active impulse wave 3.

Given the strongly bearish USD sentiment, AUDUSD currency pair can be expected to rise further toward the next resistance level 0.6760, former resistance from January and the target for the completion of the active wave 2.

Summary

The first CPI report of Q2 should be seen as welcome news by the FOMC. The headline CPI rose 0.3% in April, a tenth below consensus expectations, while the core CPI also increased 0.3%, in line with expectations but a downshift from the pace registered in Q1. Flat food prices and a decline in energy services prices helped to partially offset a jump in gasoline prices in the headline index. Excluding food and energy, more deflation for vehicles prices and a moderation in price growth for medical care services, motor vehicle insurance and motor vehicle maintenance contributed to the slowdown in core CPI.

Based on the April CPI and PPI data, we estimate the core PCE deflator increased 0.25% month-over-month in April. If realized, this would bring the three-month annualized and year-over-year rates to 3.4% and 2.8%, respectively. On balance, the April inflation data should help restore some confidence at the Fed that price growth is continuing to moderate through the month-to-month noise. That said, we think it will take more than just one solid CPI report to induce the first rate cut. We believe it will take at least a few more benign inflation readings for the FOMC to feel sufficiently confident to begin lowering the fed funds rate. We continue to look for the first rate cut from the FOMC to come at its September meeting, but any additional bumps in the road would likely push that timing back, absent a marked deterioration in the labor market.

Tamer Inflation Reading to Start Q2

Consumer price inflation in April came in a touch softer than expected, rising 0.3% in the month against a consensus forecast for 0.4% (chart). Food prices were flat over the month as a 0.2% decline in grocery store prices was offset by a 0.3% increase in prices for food consumed away from home. Energy prices rose 1.1% in April, led by a 2.8% increase in gasoline prices. Prices at the pump climbed steadily over the past few months and have contributed to the leveling off in headline CPI inflation. A recent dip in oil prices and the early read on the May data suggest some giveback is coming in next month's CPI report. Elsewhere, energy services prices declined 0.7% on the back of a sizable 2.9% drop in utility gas services. Compared to one year ago, the CPI has risen 3.4%, a tick down from the 3.5% registered in March but still modestly above the post-pandemic low of 3.0% hit back in June 2023 (chart).

Excluding food and energy, price growth moderated in April. After three straight 0.4% gains, core CPI rose 0.3% (0.29% before rounding). On a year-ago basis, core prices are up 3.6%, the smallest increase in three years (chart).

Core goods prices continued to decline in April, falling 0.1%. Notably, the drop was driven almost entirely by new and used autos (down 0.4% and 1.4%, respectively). "Other" core goods prices rose 0.5%, which was the largest increase since August 2022 and a sign that the disinflationary impulse from the goods sector is dissipating as the tailwind from healing supply chains and elevated inventories fades. Over the past year, core goods prices have fallen 1.2%, while total goods inflation (i.e., including food and energy) is up a benign 0.3%. Whether measured on a core or total basis, the sharp slowdown in goods inflation has accounted for the bulk of the decline in inflation since its peak in the summer of 2022 (chart).

With goods inflation having returned to a pace similar to before COVID, the onus of further disinflation lies increasingly on services. Prices for services ex-energy have risen 5.3% over the past year compared to an average annual rate of 2.8% from 2015-2019. The April CPI showed inflation in the service sector easing once again, albeit at a still-painfully-slow pace. Core services prices rose 0.4% in April, returning to its Q4-23 pace. Primary shelter inflation eased somewhat further, with both owners' equivalent rent and rent of primary residences moderating to a monthly increase of 0.41%. Excluding primary shelter, services inflation cooled more materially in April, with the "super core" up 0.4% after a 0.7% gain March. Contributing to the moderation was slower growth for medical services (+0.4%) and motor vehicle insurance and maintenance. Total transportation services are up 11.2% over the past year, largely due to the 22.6% jump in vehicle insurance. However, with vehicle prices having come off their peak, we expect to see related-services price growth start to cool in the months ahead (chart).

Taking into account today's CPI data and the April Producer Price Index report, we estimate the core PCE deflator, the Fed's preferred inflation gauge, rose 0.25% in April. If realized, the core PCE index would subside from a three-month annualized rate of 4.4% in March to 3.4% in April. Relative to one year ago, we expect the core PCE deflator to remain at 2.8%. The smaller sequential increase in core PCE in April would be a step in the right direction for the Fed to regain some confidence that inflation is subsiding, but we believe it will take at least few more benign inflation readings for the FOMC to feel sufficiently confident to begin lowering the fed funds rate. We continue to look for the first rate cut from the FOMC to come at its September meeting, but any additional bumps in the road would likely push that timing back, absent a marked deterioration in the labor market.