Economic Insights

Economics
January 19 2012

Weakest job market in almost 20 years

Labour force
Employment falls: Employment fell by 29,300 in December the biggest decline in eight months. Economists had expected a 10,000 lift in jobs. It was the second consecutive fall in jobs and fourth decline in six months. Employment previous fell by 7,600 in November (previously reported as a 6,300 decline). Part time jobs slump: In December part-time jobs fell 53,700 after rising by 31,900 in November, Full-time jobs rose by 24,500 after slumping by 39,400 in November. Weakest year since 1992: Over 2011 jobs fell by 100 positions the weakest result since 1992. Jobless rate unchanged: Despite the drop in jobs, the unemployment rate was unchanged at 5.2 per cent. The participation rate fell from 65.5 per cent to 65.2 per cent as jobseekers gave up the search for positions. More hours worked: The number of hours worked rose by 0.3 per cent in December as employers asked staff to work longer hours rather than taking on new workers. Unemployment across states and territories: NSW 5.6 per cent (5.2 per cent in November); Victoria 5.2 per cent (5.5 per cent); Queensland 5.4 per cent (5.7 per cent); South Australia 5.3 per cent (5.3 per cent); Western Australia 4.3 per cent (4.3 per cent); Tasmania 6.2 per cent (6.1 per cent); Northern Territory 4.4 per cent (4.3 per cent); ACT 3.8 per cent (3.8 per cent). Employment across state and territories: Jobs fell most in NSW (-20,400) followed by Victoria (-5,000), Queensland (-3,300), Western Australia (-2,500) and South Australia (-2,300). Jobs rose by 700 in Tasmania and rose in trend terms in Northern Territory (+700) and ACT (+700).

What does it all mean?

The lack of momentum in the domestic economy is clearly being reflected in the labour market. Trading conditions have been tough over the past year and the ongoing impact on profitability is hurting businesses. And after holding out for the past six months Aussie businesses have finally decided to bite the bullet and start culling staff albeit modestly. Jobs growth is now going backwards, adding to data showing sluggish retail spending, a weak housing market

Savanth Sebastian Economist (Author) (02) 9118 1805 (work); 0414 188 161 (mobile)| savanth.sebastian@cba.com.au
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Economic Insights Weakest job market in almost 20 years

and lacklustre activity in manufacturing, services and construction sectors. In fact over 2011 there were no jobs created with a total of 100 jobs being lost marking the weakest result for a calendar year since 1992. Interestingly December tends to be affected by seasonal factors, such as a pickup in hiring in the retail and service sectors. However this time it seems that retailers have been a lot more cautious, culling hiring plans due to the lack of consumer spending. In fact in original terms around 115,000 jobs were created in the December, compared with the decade average of 161,000 jobs. Clearly the seasonal workers bore the brunt of the weakness. Domestic business conditions are tough, and inherent weakness in the housing sector is filtering through to other parts of the economy. In addition the strength of the dollar continues to hurt the tourism dominated regions. And over the next few months the ongoing uncertainty about the global environment is likely to ensure businesses remain cautious and as such hiring intentions will continue to be scaled back a result that has been mirrored in the ongoing weakness in job advertisements and will result in the unemployment rate rising modestly toward 5.7 per cent over the coming year. On a positive note, the rate cuts over the past couple of months will help to shore up confidence, alleviate interest costs for businesses and provide a modest degree of support to the economy. However the latest employment result cements our view that the Reserve Bank will likely have to cut interest rates over the next few months to stimulate activity. And while we may bemoan the flat job market, things could be worse. In Australia the jobless rate is still just 5.2 per cent, not 8.5 per cent or above as is the case in the US and many European economies.

What do the figures show?

Labour force Employment fell by 29,300 in December. Economists had tipped job gains of around 10,000. The November result was revised slightly from an initially reported loss of 6,300 people to a loss of 7,600. Full-time employment rose by 24,500 in December and part-time jobs fell by 53,700. The annual employment growth rate eased from 0.3 per cent to being flat in December the weakest growth rate in 18 years. The unemployment rate held steady at 5.2 per cent in December. The participation rate fell from 65.5 per cent to 65.2 per cent. Average hours worked rose by 0.3 per cent in December after falling by 0.5 per cent in November. The number of hours worked is up 1.4 per cent on a year ago Across the states and territories unemployment rates in December were: NSW 5.6 per cent (5.2 per cent in November); Victoria 5.2 per cent (5.5 per cent); Queensland 5.4 per cent (5.7 per cent); South Australia 5.3 per cent (5.3 per cent); Western Australia 4.3 per cent (4.3 per cent); Tasmania 6.2 per cent (6.1 per cent); Northern Territory 4.4 per cent (4.3 per cent); ACT 3.8 per cent (3.8 per cent). NSW led the job gains in December (down 20,400), followed by Victoria (-5,000), Queensland (-3,300), Western Australia (-2,500) and South Australia (-2,300). Jobs rose by 700 in Tasmania and rose in trend terms in Northern

January 19 2012

Economic Insights Weakest job market in almost 20 years

Territory (+700) and ACT (+700). The working age population rose by 21,000 in December after lifting by 21,100 in November. The working age population grew by 1.2 per cent over the past year the smallest gain in 11 years.

What is the importance of the economic data?

The Labour Force estimates are derived from a monthly survey conducted by the Bureau of Statistics. The population survey is based on a multi-stage area sample of private dwellings (currently about 22,800 houses, flats, etc.) and a sample of non-private dwellings (hotels, motels, etc.). The survey covers about 0.24 per cent of the population of Australia and includes all people over 15 years of age, except defence personnel. If more people are employed, then there is greater spending power in the economy. But at the same time companies may adjust the work hours of employees. If employees work less hours, and therefore get paid less, then spending power in the economy is reduced.

What are the implications for interest rates and investors?

The latest jobs result was disappointing and given the ongoing weakness in the ANZ job ads series it is likely that conditions in the labour market will remain soft over the first half of 2012. The recent rate cuts will help to support activity at the margin, but given the ongoing concerns in Europe and no clear resolution to the debt crisis it is likely that the Reserve Bank will cut rates once again in February.

Savanth Sebastian, Economist, CommSec Work: (02) 9118 1805; Mobile: 0414 188 161

January 19 2012