August jobless rate falls despite large employment fall

Summary: Total employment drops by 146,300 in August, fall larger than expected; more of labour market adjustment to lockdowns occurs via reduction in hours rather than jobs; participation rate falls by 0.8ppt to 65.2%; fewer jobseekers outweighs smaller available workforce, sends jobless rate to 4.5%; fewer part-time, full-time jobs; aggregate work hours falls 3.7%; does not derail ANZ’s view labour market is more resilient this time around; underemployment rate up from 8.3% to 9.3%.

Australia’s period of falling unemployment came to an end in early 2019 when the jobless rate hit a low of 4.9%. It then averaged around 5.2% through to March 2020, bouncing around in a range from 5.1% to 5.3%. Leading indicators such as ANZ’s Job Ads survey and NAB’s capacity utilisation estimate suggested the unemployment rate would rise in the June 2020 quarter and it did so, sharply. The jobless rate peaked in July 2020 but fell below 7% a month later and then continued to trend lower.

The latest Labour force figures have now been released and they indicate the number of people employed in Australia according to ABS definitions dropped by 146,300 in August. The fall was larger than the expected 100,000 decrease and in contrast with July’s revised increase of 3,100.

“We have been expecting much more of the adjustment in the labour market to lockdowns would occur via a reduction in hours worked rather than employment, as occurred in prior lockdowns. Today’s data further supports this view,” said UBS economist George Tharenou.

Domestic Treasury bond yields rose on the day. By the close of business, the 3-year ACGB yield had added 3bps to 0.36%, the 10-year yield had gained 5bps to 1.29% while the 20-year yield finished 6bps higher at 1.90%.

In the cash futures market, expectations of any change in the actual cash rate remained soft. At the end of the day, contract prices implied the cash rate would gradually rise from its current rate of 0.03% to around 0.19% by December 2022.

The participation rate fell noticeably from 66.0% to 65.2% as the total available workforce decreased by 168,200 to 13,639,700. The number of unemployed persons fell by 21,900 to 617,100; the lower unemployment number outweighed fewer people in the workforce, leading to a drop in the unemployment rate from 4.6% to 4.5%.

The aggregate number of work hours across the whole Australian economy dropped as 78,200 residents lost part-time positions and 68,100 residents lost full-time positions. In percentage terms, the total number of work hours dropped by 3.7% in August after declining by 0.2% in July. On a 12-month basis and after revisions, aggregate hours worked increased by 1.6% as a result of having 25,300 more part-time employees and 370,800 more full-time employees than in August 2020.

ANZ senior economist Catherine Birch said the result “does not derail our view that the labour market is more resilient this time around and will rebound once restrictions ease.”  However, she expects the jobless rate to rise in coming months, especially “if participation initially recovers more quickly than employment, as it did following the national lockdown last year.”

In recent years, more attention has been paid to the underemployment rate, which is the number of people in work but who wish to work more hours than they do currently. The underemployment rate jumped from July’s rate of 8.3% to 9.3%.

The underutilisation rate, that is the sum of the underemployment rate and the unemployment rate, has a strong correlation with the annual growth rate of the ABS private sector wage index when advanced by one quarter. August’s underutilisation rate of 13.8% corresponds with an annual growth rate of about 2.6%.

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