9 August 2012
•
Taken at face value, the headline outcomes from the July labour force release paint a positive picture.
•
But if one investigates the detail, a different picture emerges.
•
First, but for revisions to the June observations, July would have seen a marginal deterioration in the unemployment rate, from 5.20% to 5.23%.
•
Further, July saw the continuation of a now year-long trend: employment growth being driven by part-time job creation, not full-time. Over the past year, full-time jobs have increased 20.8k versus a 45.2k increase in part-time jobs.
•
Consistent with the full/part-time story, we note that in
July female employment growth remained dominant: male employment fell by 6.2k while female employment rose
20.2k. Over the past year, female employment growth has been almost three times stronger.
•
In terms of the state breakdown, there is little to report.
NSW (3.3k), QLD (6.2k) and SA (2.1k) all saw small increases in employment in July. In contrast, modest job losses were seen in VIC (–3.8k) and WA (–4.2k).
•
Movements in the participation rate and the unemployment rate were very marginal in July, but taking a longer-term view, changes in the participation rate have been crucial in keeping the unemployment rate between
5.0% and 5.3%.
•
Had the participation rate not declined from its Nov '10 peak of 65.97% (to 65.23%), the unemployment rate would be above 6%. This is consistent with the decline seen in the employment to population ratio during this time, from
62.58% to 61.84%.
Taken at face value, the headline outcomes from the July labour force release paints a positive picture. The 14k rise in total employment was above the market expectation of 10k, in line with our own 15k forecast. Also, the unemployment rate declined from 5.3% to 5.2% – Westpac and the market had expected a
5.3% print. That said, if one investigates the detail of the release, an underwhelming tone becomes apparent.
Before analysing the detail for July, we must take a moment to consider the revised June outcomes.
As initially reported, June saw the loss of 27k jobs, and an increase in the unemployment rate to 5.2% (from 5.1%). However, today's revisions saw a further 1.3k job losses added to June and an upward revision in the unemployment rate from 5.20% to
5.25% (5.3% to 1dp), principally due to a revised participation rate of 65.26% (prev 65.22%).
Total employment (‘000)
Total employment (% chg)
F-time employment (‘000)
F-time employment (% chg)
P-time employment (‘000)
Monthly Year to
Jun-12 Jul-12 Jun-12 Jul-12
-28.3
-0.2
-34.8
-0.4
6.5
14.0
0.1
9.2
0.1
4.8
47.4
0.4
-13.5
-0.2
60.9
P-time employment (% chg)
Unemployment rate %
Participation rate %
Employment to population %
Total hours worked (% chg)
0.2
5.25
65.3
61.8
-1.2
0.1
5.23
65.2
61.8
0.8
1.8
1.3
4.99* 5.13*
65.6* 65.6*
62.3* 62.3*
-0.9
* Observation one year ago. Sources: ABS 6202, Westpac Economics Research
-0.2
66.0
0.6
20.8
0.3
45.2
80
'000
Sources: ABS, Westpac Economics
60
40
20
0
-20
-40
-60
Jul-07 jobs mth chg, '000 labour force mth chg, '000
Jul-08 Jul-09 Jul-10 Jul-11
'000
-20
-40
Jul-12
-60
80
60
40
20
0
76
%
Sources: ABS, Westpac Economics
75
74
73 male
72
71
70
69
Jul-02 Jul-08 Jul-02 female
Jul-08
%
60
59
58
57
56
55
54
53
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
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9 August 2012
Had these revisions not occurred, the unemployment rate would have deteriorated at the margin in July, from 5.20% to 5.23%.
Clearly it is not appropriate to regard the July report as evidence in favour of a turning point. In isolation, July is a 'neutral' jobs report, but when viewed together with recent history, it is further evidence of a somewhat concerning trend: sub-par job creation, particularly for full-time and male workers.
In July, full-time employment rose by 9.2k, only partially offsetting
June's 34.8k fall; part-time employment saw another modest rise of 4.8k. Over the past year, full-time positions have risen by only
20.8k, less than half the 45.2k rise in part-time work. This is a stark contrast to the year to July 2011, when 173k full-time jobs were added, compared to 16k part-time jobs. Needless to say, the shift from full-time to part-time employment growth is not a positive for household incomes.
The other important split within the detail is male and female employment growth. In July, male employment fell by 6.2k while female employment rose 20.2k; that follows the loss of 10.2k male jobs and 18.1k female jobs in June. More broadly, over the past year, female employment growth has been almost three times that of males (48.4k versus 17.6k). Historically, male incomes have been higher than female incomes, so this trend also points to soft household income growth.
In terms of the state breakdown, there is little to report. NSW
(3.3k), QLD (6.2k) and SA (2.1k) all saw a small increase in employment in July; in contrast, modest job losses were seen in
VIC (–3.8k) and WA (–4.2k). NSW (5.2%), VIC (5.4%) and WA's
(3.6%) unemployment rates were broadly stable in the month;
QLD's rose (from 5.3% to 5.8%) and SA's fell (from 6.4% to 5.4%), primarily due to movements in the participation rate.
As noted above, movements in the participation rate and the unemployment rate were very marginal in July: the unemployment rate edged 0.02ppts lower to 5.23%, while the participation rate edged 0.01ppts lower to 65.25%.
However, taking a longer-term view, changes in the participation rate have been crucial in keeping the unemployment rate near
5%. Specifically, had the participation rate not declined over the past year (from 65.62% to 65.25%), the unemployment rate would have risen to almost 5.8% – our 2012 year-end target. If the participation rate had remained unchanged from its November
2010 peak of 65.97%, then the unemployment rate would have already risen above 6%.
Given the significant impact that the falling participation rate is having on the unemployment rate, it makes sense to cross-check our analysis against an indicator which is not affected by this noise – the employment to population ratio. Since the Nov '10 peak in the participation rate, the employment to population ratio has declined from 62.58% to 61.84%. That is a near two-year low and a level that the ratio has (broadly speaking) remained above for the past six years. This is not a trend that is logically consistent with a broadly-stable unemployment rate.
Overall, the July labour force survey is consistent with our long-held expectation that employment growth will maintain a decidedly modest pace through the second half of 2012.
Continued working-age population growth, a broadly stable participation rate, and modest job increases would see the unemployment rate rise to around 5.8% by year's end. The soft tone of recent business survey data and the trend rise in the
Westpac–MI consumer unemployment expectations index is consistent with this view.
Elliot Clarke, Economist +61 (2) 8253 8476
3
0
-3
12
%ann
Sources: ABS, Westpac Economics
9
6
-6
-9
Jul-96 part-time (lhs)
Jul-00 Jul-04 full-time (rhs)
Jul-08
7.0
%
6.0
NSW
Vic
5.0
4.0
NSW & Vic starting to converge
3.0
Sources: ABS, Westpac Economics
2.0
Jul-07 Jul-10 Jul-07
8
%
Sources: ABS, Westpac Economics
7 if part-rate held 65.62% from Jul 11 unemployment rate
6
%
8
7
6
5
4
3
Jul-00 Jul-03 Jul-06
Unemployment moving sideways in Qld
WA
Qld
Trending down again in WA
Jul-10
Jul-09
%ann
4
2
0
-2
Jul-12
-4
% monthly
7.0
6.0
Jul-12
3
0.64
0.63
0.62
ratio
Sources: ABS, Westpac Economics employment/pop ratio (lhs) unemployment rate (rhs)
0.61
0.60
0.59
0.58
0.57
Jul-96 Jul-01 Jul-06 Jul-11
%
5.0
4.0
3.0
2.0
5
4
9
7
5
3
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
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