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Australia's January Unemployment Change


20 February 2019

We could have some volatility in AUD pairs coming up during the Asian session, as the Australian Bureau of Statistics will be releasing a series of employment data.

The release is scheduled for Wednesday at 19:30 EST (or Thursday at 01:30 CET). Here are some things to keep in mind ahead of this data.

The Headline Data Numbers


Of the three bits of data coming out at the same time, the one that the markets gravitate towards is the rate itself. This rate is seasonally adjusted to account for the large agricultural base in the Australian economy.

Employment data is less relevant to monetary policy in Australia than in it is to monetary policy in the US. This is because the RBA doesn’t have a mandate to keep employment low.

However, the bank is notoriously conservative. It takes a hardline stance in regards to inflation and changes in employment can be indicative of future inflationary pressures or reliefs.

So, it is still a significant piece of data on the monthly economic calendar. But, its effect on the currency is indirect and based on the expectations that it conveys regarding future inflation trends.

The Latest Figures


Australia has a bit of what might be called a “good problem”. The unemployment rate lately has been quite low. Last month, it dropped back to 5.0%, the lowest of the last seven years.

The reason this is a problem is that economists generally agree that structural employment is somewhere between 4-6%. And Australia is well within that range.

As we’ve discussed previously, structural employment is an essential factor in assessing the inflation impact of employment. This is because as it drops around that level, it becomes increasingly hard for companies to find employees.

This causes labor cost inflation and can ultimately impact productivity, as work goes undone for lack of employees. This is considered as negative for the economy, and might even prompt intervention from the RBA.

The Labor Situation


Lately, however, Australia’s CPI has been hovering close to the central bank’s target of 2.0%, staying around that level since the beginning of 2017. While that might be comforting for policymakers, the quarterly wage price index has been increasing by over 2,0%.

By itself, this could be an indication of labour tightness. On the other hand, last month’s underemployment rate came in at 8.4%, which is above the historical average. This indicates that there still might be room in the labor market.

While December’s unemployment rate dropped to multi-year lows, employment beat expectations in its increase, even though the participation rate fell. This reiterates the position seen last month, that job creation remains robust. Hiccups in the data are more likely a representative of changes in demand for jobs, than in the economy’s ability to create jobs.

Expectations


Current expectations are for the unemployment rate to stay at its multi-year low of 5.0%. For reference, the RBA’s monetary statement projected the unemployment rate to drop to 4.75% by the end of the year.

The participation rate is expected to tick back up to 65.7%, which would be one decimal higher than the prior month. Labor force participation has remained pretty steady over the last year, between 65.5% and 65.8%, not giving us many surprises.

As for the employment change, after two consecutive months of beating expectations, predictions are for there to have been 27.8K jobs created during January, which would be an increase over the prior month.

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