Lockdowns hit in October jobs report; “solid rebound” expected in November

Summary: Total employment falls by 46,300 in October, fall larger in contrast with +50,000 expected; “solid rebound” expected in November, although jobless rate may rise on higher participation rate; the impact from Victorian lockdown in October data; survey period excludes Victorian reopening, includes only partial reopening in New South Wales; participation rate rises by 0.2ppt to 64.7%; more jobseekers not fully offset by larger available workforce, sends jobless rate to 5.2%; fewer part-time, fewer full-time jobs; aggregate work hours declines 0.1%; underemployment rate up from 9.2% to 9.5%.

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 decreased by 46,300 in October. The fall was in contrast to the expected 50,000 increase but it was not as great as September’s revised drop of 141,100.

“Following today we are looking for a solid rebound in employment in November but we still need to consider how much further participation could jump, and how fast it can rise, to see if it will it be enough to generate a further rise in unemployment,” said Westpac senior economist Justin Smirk.

Domestic Treasury bond yields generally fell, although ultra-long yields increased noticeably, having unexpectedly fallen the previous day. By the close of business, the 3-year ACGB yield had lost 4bps to 1.20%, the 10-year yield had shed 3bps to 1.4% while the 20-year yield finished 9bps higher at 2.39%.

In the cash futures market, expectations of any material change in the actual cash rate, currently at 0.03%, remained fairly soft. At the end of the day, contract prices implied the cash rate would not exceed the RBA’s 0.10% target rate until May 2022 and then rise to 1.225% by March 2023.

“We’re not too worried about the weak month, though. Victoria’s later entry into lockdown than New South Wales saw a lot of the impact on its labour market come through in the October data,” said ANZ senior economist Catherine Birch.

Citi Research economist Faraz Syed noted the survey period did not include Victoria’s reopening and just the partial reopening in New South Wales. “Given this quirk, the decline in employment and a higher unemployment rate isn’t too surprising and instead, the November LFS will be far more important because it will include the reopening and also the end of fiscal support payments.”

The participation rate increased after two months of falls, rising from 64.5% to 64.7%, as the total available workforce increased by 35,500 to 13.53 million. The number of unemployed persons rose by 81,800 to 707,300; the higher unemployment number more than offset the greater number of people in the workforce, leading to a rise in the unemployment rate from 4.6% to 5.2%.

The aggregate number of work hours across the whole Australian economy fell as 5,900 residents lost part-time positions and 40,400 residents lost full-time positions. In percentage terms, the total number of work hours declined by 0.1% after falling by 0.9% in September. On a 12-month basis and after revisions, aggregate hours worked fell by 0.4% despite having 306,400 more full-time employees but 212,300 fewer part-time employees than in October 2020.

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. Unsurprisingly, the underemployment rate increased from 9.2% to 9.5%.

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. October’s underutilisation rate of 14.7% corresponds with an annual growth rate of about 2.2%.

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