The trend is your friend…until the end when it bends, as the old saying goes.
It pays to watch the trend when it comes to labour market data, and one should always be wary of monthly readings.
However, it is hard to highlight much of a positive spin about a headline unemployment rate of 7.4% as was recorded by South Australia in today’s Labour Force figures for June.
Let’s take a quick 60 second dash through today’s data to see what we can learn…
Employment up a bit…
Total employed in Australia increased in the month of June by just under +15,900, thanks to an increase in part-time positions:
- Employment increased 15,900 to 11,578,200. Full-time employment decreased 3,800 to 8,062,500 and part-time employment increased 19,700 to 3,515,700
- Unemployment increased 20,300 to 741,700. The number of unemployed persons looking for full-time work increased 10,000 to 543,000 and the number of unemployed persons only looking for part-time work increased 10,300 to 198,600.
- The unemployment rate increased 0.1 pts to 6.0%.
Not a bad result, then, but not that great either.
As noted, the monthly data is always volatile, but the economy has added +110,000 jobs in the first half of the year, mostly full time:
That’s heartening to see, but do recall that the Aussie population expanded by close to +400,000 persons in 2013.
So in actuality we’d want to see employment growth of more like +25,000 per month, which is plenty faster than appears to have occurred of late, even allowing for the whopping variances which tend to arise due to the small ABS sample sizes.
Zooming in the chart a little shows how the economy is at least adding some jobs – if not yet as many as would be desirable – having very much stalled in 2013:
Fans of the somewhat ridiculously named phenomenon of ‘womenomics’ will be pleased to learn that marginally more jobs this year have been added for women (+56,000) than for men (+54,000).
The below graphic is a chart of note for those interested in property investment, since it has been the demographic shift towards the dual income household in concert with plummeting interest rates which has accounted for almost all of the run-up in dwelling prices over recent decades:
As alluded to above, the population has continued to expand faster than the economy has been able to add jobs, and thus the unemployment rate ticked up in June to 6.0% s.a. (May: 5.9% s.a.), with the participation also nudging slightly higher, up by 0.1 pts to 64.7%:
On a national level, this suggests that easier monetary policy still may yet be required, though the Reserve Bank will doubtless be keeping a watchful eye out for runaway house prices.
The key data to look out for henceforth for interest rate ‘twitchers’ will be the inflation data on 23 July, and the next round of capex data for the June 2014 quarter, which is due to be released on 28 August.
If those figures are soft – which appears to be possible and likely respectively – then you might begin to cautiously pencil in a further interest rate cut, perhaps as soon as October, to an official cash rate of only 2.25%.
Why rates are likely to be cut
Without over-complicating matters too much, we now have an unemployment rate of 6.0% once again, and we’d rather have one with a ‘4 handle’…or perhaps 5.0%.
[sam id=40 codes=’true’]Over the last five years, most all of my old mining buddies have been working on resources construction projects of one type or another.
Now they’re starting to think about what to do with their completion bonuses, and considering what they will do next.
While the music doesn’t all stop at once, many of the mining construction projects are drawing to a close before transitioning into the production phase.
Anywhere, from 75,000 to 100,000 resources jobs could go which, says to me that the economy needs to be adding jobs much more quickly than it is now.
Even if the inflation rate temporarily breaches the top of the 2-3% target band, the next move in interest rates is now more likely than not to be down.
Non-tradables inflation, considered to be something of a proxy for wages growth – and the category of inflation most effected by the RBA’s monetary policy – has been falling, since there is slack in the labour market.
And given the soggy labour market data, non-tradables inflation looks likely to keep falling in future quarters too.
Tradables inflation has been rising, mainly because of the depreciation of the dollar from above parity to around 94 cents. The outlook for tradables inflation will depend on how the dollar fares, and the fate of commodity prices.
State by state
Not adjusted for seasonality, the long term employment data by state shows how employment growth over the past half decade has been almost totally accounted for by the four main states, with Queensland a big mover and shaker:
When charted in a columnar format, a far clearer pattern emerges – lately it’s all been about those four states:
Southern states have weak economies
There has been a lot of talk about a South Australian “property boom” over the past six years or so, based upon a projected forward thrust from a number of major resources projects, and Holden’s “assured future” in the Adelaide automotive industry.
These matters did not eventuate.
No problem with that, but any balanced investment adviser worth their salt, and particularly, one not acting in their own vested interest, should now also make it clear when investment risks are rising.
And in South Australia, in my opinion, the risks look to be rising.
For the purposes of balance, I note that others continue to take the opposite view to me and still continue to pick out Adelaide as the standout market (“Adelaide poised to lead price growth“).
Fair enough, but I’ll just note here that a number of key resources projects did not attract the expected green ticks, and the local automotive industry is in strife.
Moreover, the labour force data coming out of South Australia is very weak.
As noted above, it never pays to get too aroused by one data print, but South Australia has added a total of zero jobs on a net basis for 53 consecutive months now.
I don’t yet know for sure whether this sorry state of affairs will improve – no-one does – but the result in June 2014 was that the unemployment rate in SA leapt alarmingly to 7.4% s.a.
This is now by some margin the highest rate of unemployment rate in the country.
The headline rate of unemployment in South Australia is now even higher than that of Tasmania at 7.2% s.a. (click chart):
The unemployment rate remained steady in Western Australia at only 5.0% s.a., where the economy has still managed to add +39,000 jobs y/y on a trend basis, in spite of the mining construction slowdown.
Queensland has added the most jobs over the past year at +68,000, and in fact, the sunshine state has been the boss of cumulative jobs added over both the last ten and fifteen years, despite a bit a slowdown in recent years.
Victoria seems to be going through a bit of a sticky patch, with a net -13,000 jobs shed on a trend basis over the past 12 months, and the unemployment rate consequently ticking up to 6.5% s.a.
Over the long run, my money is on New South Wales to continue adding headcount as it has continued to do in a proven manner for the past few decades.
Due to the largest absolute population growth in the country in New South Wales (+110,300 y/y), the state has both an infrastructure deficit and a dwelling deficit, and stands squarely in the early stages of a major construction boom.
And, importantly for the premier state, it’s not a construction boom that is commodity price dependent.
The total value of construction work done is already +40% in the past two years in New South Wales, and looking at the vast array of commercial and residential construction projects both underway and in the pipeline, that boom appears to me to have much further to run.