Total employment: 14.7k from 37.9k (revised from 36.4k). Unemployment rate: 5.2% from 5.3% (unrevised 5.3%). Participation rate: 66.1% from 66.2% (unrevised 66.2%).
The most notable update in the September Labour Force survey is that the unemployment rate declined from 5.3% to 5.2%, against consensus expectations for a steady read. That comes with a moderate increase in employment of 14.7k (in line with consensus) but a retracement in the participation rate from 61.2% to 61.1%.
In context, employment growth has averaged 25k per month in 2019, but stronger growth in labour supply has seen the unemployment rate gradually trend up since early this year – this is the first monthly decline we have seen since February. However, note that in August, the unemployment rate was 5.25% at two decimal places and is now 5.20%. The modest 0.05ppt movement is not uncommon given the volatility in the survey. As such, we remain comfortable with our expectation that moderating employment growth and a resilient participation rate will see the unemployment rate continue its gradual trend higher into 2020.
Also of note in the September release was the improvement in the underemployment rate from 8.5% to 8.3% (8.35% at two decimal places). Key here was a 26.2k lift in full-time employment against an 11.4k decline in part-time employment. Looking past the monthly movement, an 8.3% underemployment rate is still quite high and evident of broader labour market slack beyond the 5.2% unemployment rate. In that regard, we would also note that annual growth in hours worked of 1.9%yr is significantly below the 2.5%yr increase in total employment.
Taking a step aside to look at the state detail, the bulk of September’s employment gain was driven by Qld, up 25.3k. Elsewhere, Vic posted an 8.6k lift, both NSW and WA reversed last month’s gains, -23.0k and -5.9k respectively, while SA and Tas saw modest increases of 1.5k and 2.2k respectively. In terms of labour market slack, NSW and Vic remain the tightest labour markets with unemployment rates of 4.5% and 4.7% respectively, whereas there is still a fair way to go for the other states to get closer to full capacity.
Overall, we think this month’s modest decline in the unemployment rate will be temporary and emphasise we are still a long way away from the RBA’s full employment aim of 4.5%. It does however allow the RBA some more time to monitor the economy before having to act again.
In our view, while rate cuts along with the Government’s tax offset payments should help to support demand, we think it will be insufficient to get economic growth moving back to trend or above in 2020. As we see employment growth moderating and the participation rate declining only slightly to 65.9% by end 2020, we continue to expect slack in the labour market to persist.
