Do the employment numbers point to an improving economy?

Nomura Australia economist and rate strategist, Andrew Ticehurst, talks about the unemployment numbers and whether it’s a sign that the Australian economy is improving

Introduction- Employment numbers

Ross Greenwood: Let’s start with our un employment numbers in Australia. The un-employment rate remains steady at 5.6%. The interesting thing about this is the back-to-back job gains are the largest in 29 years. There have been nine straight months of job gains. The other point also is to bear in mind that over a longer period of time, you can see this that the number of jobs that have been created is significant.

The chief economist for the Australian Bureau of Statistics, Bruce Hoffman, has now said that there have been some 187,000 people in full-time employment since September last year. What happened this time last year is that there were fewer full-time jobs, more part-time jobs. That’s now being reversed. Let’s now go to somebody who’s been watching this and that is the economist and also the chief rate strategist for Nomura here in Australia, Andrew Ticehurst is on the line right now. Many thanks for your time, Andrew.

Interview: Andrew Ticehurst, Nomura Australia rate strategist 

Andrew Ticehurst: Hi, Ross. Thanks for having me on.

Ross Greenwood: Okay. Does this actually signal, do you think, the turning in the Australian economy, that things are starting to look a little brighter?

Andrew Ticehurst: Perhaps. I must say that the Australian data is very volatile from month and month. We really do have to interpret it with care. It was only three or four months ago that the employment numbers data was looking weak. The Reserve Bank of Australia was starting to express some caution. Now we’ve had three or four months of solid back to back gains. I suspect things were not quite as weak as the earlier data suggested and not quite as strong as this latest batch suggested. The truth usually lies between two extremes but nevertheless, it looks like a reasonably healthy and a reasonably encouraging trend.

Ross Greenwood: Is there any feeling as to where the work is coming from? Is it the house building that was where it was quite clearly a significant employer when a lot of those houses and construction sites were under way? Is there any view as to where it’s coming from now?

Andrew Ticehurst: We only get clues about the industry breakdown once each quarter and that didn’t come out in today’s June data. If we look back to the latest available data, you’re dead right. Construction employment is up over the last 12 months or so. We’ve also been creating jobs it seems in some of the service sectors including public administration, safety, education, health, and social assistance. Those are the areas which have been pretty strong over the prior 12 months. Off setting that, mining, of course, has been pretty flat and retail has gone backwards.

Ross Greenwood: When I look at the state based unemployment, it does show again the incredible strength of New South Wales as an economy, off the back of that housing construction boom. The trend unemployment rate in New South Wales 4.8% in June, in Victoria 6% in June, in Queensland 6.3%, South Australia’s 7%, WIS 5.6%, Tazi 5.8%, and the Australian Capital Territory 4.4%. That really is almost a telltale as to the economic pictures inside the individual states and says plenty about the national economy.

Andrew Ticehurst: I think that’s also right. New South Wales as you said, the unemployment rates are pretty low. Population growth is strong but construction growth is also strong. Not just probably in dwelling construction in terms of private sector construction. But also the New South Wales state government has been spending money on infrastructure so there’s probably been some public construction helping out on the job front as well. Queensland, of course, has been weaker.

That shows up in retail sales and a bunch of other statistics. Their unemployment rate is, unfortunately, higher at 6.5. South Australia of course, in some difficulty, was in unemployment rate as you say, at around 7%.

Ross Greenwood: Tell me one other aspect of this because the underemployment numbers are also put out here. What we recognize is that wages growth is very close to an all-time low. Wages aren’t growing as much as people would hope or expect at this time. That’s largely because of partly the casualization of the workforce. Because their spare capacity in employment out there, people could potentially work more hours or there’s extra jobs out there. Do you see anything now that some of that, if you like oversupply, of labor, it’s starting to come out? There is more work and that could actually start to stimulate wages as well.

Andrew Ticehurst: There’s some encouraging signs but I don’t think we can conclude that with 100% degree of confidence today. The unemployment rate is down at 5.6 which is not too bad. But as you said, there are a lot of underemployed Australians. As the Bureau of Statistics counts it up, they think that there’s about a million Australians all working part-time have actually putting their hands up and saying, “I’d like to work more hours, please.”

There’s plenty of underemployment and plenty of what economists would call spare capacity. The labor market still will probably keep wage growth relatively low. As we know, wage growth in Australia is around historically low levels at the moment, only about 2%. It could pick up a little bit over time. Unfortunately, I don’t think it’s going to pick up in any substantial and meaningful sense for some time.

Ross Greenwood: Andrew, does this change in any of your views on interest rates and when maybe rate rises might occur into the future?

Andrew Ticehurst: Not really. We would look at the broad suite of economic data here and say the economy is growing and that’s a good thing. But it’s growing at only a moderate pace. It’s not growing fast enough to generate bigger wage gains or big increases in the CPI. I think it’s most likely the cash rate will stay at current level at 1.5, at least over the rest of this year. The market is starting to speculate that the next move in Australian interest rate is going to be up. Some people are talking about higher cash rates here in Australia towards the end of this year. I suspect that’s too soon.

We are seeing higher interest rates in other parts of the world including over in the US. The European Central Bank starting to talk about higher interest rates. We also had a rate hike from the Bank of Canada recently. That’s got a lot of people in the market thinking about who could be next and Australia’s been thrown into that mix. The markets starting to speculate about this but I think it’s still too soon to be thinking about a higher cash rate this year.

Ross Greenwood: Andrew Ticehurst, Nomura Australia’s economists and also its interest rate strategies as well. Andrew, we appreciate your time here on Money News tonight.

Andrew: Thank you so much.

Other articles on Employment numbers:

20-07-2017 Do the employment numbers point to an improving economy?

20-07-2017 Money Minute – July 19 2017 “Signs Of Life”

05-07-2017 Deputy NSW Premier John Barilaro: Youth Employment is one of my top priorities

03-07-2017 Employment – Real jobs or slavery?

07-06-2017 John Barilaro: Careers Australia going under

06-06-2017 Minimum wage to increase by 3.3%

18-05-2017 Unemployment falls but the only jobs created are part-time

10-05-2017 Economic growth optimistic – Alan Oster NAB

04-05-2017 Household Debt, Housing Prices, and Resilience

20-04-2017 Turnbull’s decision to scrap 457 visas is political, but sensible

20-04-2017 Where do Australian jobs come from? – Michael Knox Economist Morgans Stockbroking

14-04-2017 The Week that was – 14 April 2017

13-04-2017 Surge in full-time jobs – Paul Dales

12-04-2017 Money Minute – April 12 2017 “Careful What You Wish For”

04-04-2017 Interest rates could still fall

20-03-2017 Jail for corrupt payments between unions and business

16-03-2017 9News: Global interest rates and unemployment figures rise

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