Thursday, March 20, 2014

Australia’s Sudden Jump in Jobs

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After the disappointment of January's initial jobs figures, Australia got a double dose of good news on the employment front. In February, the economy added 47,300 jobs, blowing past the consensus forecast of 15,000. That makes it the single best month of employment gains since early 2012, which was at the height of the resource boom.

Full-time employment jumped by 80,500 jobs, while part-time jobs fell by 33,300 positions.

Almost as good, January's dismal loss of 3,700 jobs was revised to a gain of 18,000 jobs, thanks to a seasonal re-analysis of the earlier numbers.

February's unemployment rate still came in at a 10-year high of 6.0 percent, in line with the consensus, but the labor force participation rate improved by a substantial three-tenths of a percentage point, to 64.8 percent.

Over the trailing three-year period, the Australian economy has added an average of 9,900 jobs per month, while over the trailing year employment has grown by 5,800 jobs per month. In fact, last year was the worst for job creation in more than 20 years. So it's too soon to know whether these stronger-than-expected data are merely a blip or signify a resurgent economy.

Indeed, economists with Westpac caution that a strong jobs number accompanied by a flat unemployment rate usually means that the employment gains can't be taken at face value. For instance, the total hours worked, which is an important indicator of future labor demand, declined 0.9 percent from a month ago. In other words, March employment data may not be nearly as rosy.

Instead, Westpac advises that the employment-to-population ratio is more instructive about the underlying strength of the jobs market. At 60.9 percent, this figure remains slightly more than seven-tenths of a percentage point below the year-ago number. It's also nearly six-tenths of a percentage point below the low experienced amid the Global Financial Crisis.

Westpac forecasts that the unemployment rate will ultimately peak at 6.5 percent by mid-2014.

In the newly published minutes from its February monetary policy meeting, which occurred prior to the release of the latest jobs data, the Reserve Bank of Australia (RBA) observed that the labor market remains weak, with the wage price index growing just 2.6 percent year over year during the fourth quarter, the lowest year-end result since the late 1990s.

The central bank's survey of businesses suggests this trend will persist at least through the first quarter, given the abundance of available labor as the resource sector cuts jobs due to the decline in mining investment.

At the same time, the RBA noted that forward-looking indicators of labor demand appear to have stabilized. As the central bank observed, the labor market tends to lag changes in the underlying economy. And with the country's gross domestic product (GDP) expected to grow by 2.8 percent in 2014, up a substantial four-tenths of a percentage point from last year, it looks like 2013 will mark the trough of this cycle.

Despite the near-term uncertainty, it's important to keep sight of the big picture. Although Australia's GDP is currently growing at a pace below its long-term trend, this year should be the 23rd consecutive year in which the country's economy has grown.

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