Unemployment rate in August drops despite a sharp drop in employment

Summary: Total employment fell by 146,300 in August, a larger drop than expected; more of the labor market adjustment to bottlenecks occurs through reduced hours rather than jobs; the participation rate drops from 0.8 ppt to 65.2%; fewer job seekers outweigh a smaller available workforce, sends unemployment rate to 4.5%; fewer part-time and full-time jobs; the total number of working hours decreases by 3.7%; doesn’t derail ANZ’s point of view, the job market is more resilient this time around; the underemployment rate drops from 8.3% to 9.3%.

Australia’s period of declining unemployment ended in early 2019 when the unemployment rate hit a low of 4.9%. It then averaged 5.2% through March 2020, rebounding in a range of 5.1% to 5.3%. Leading indicators such as ANZ’s Job Ads survey and NAB’s capacity utilization estimate suggest that the unemployment rate would rise in the June 2020 quarter and it did, sharply. The unemployment rate peaked in July 2020, but fell below 7% a month later and then continued to decline.

The latest workforce figures have now been released and they show that the number of people employed in Australia according to ABS definitions fell by 146,300 in August. The drop was larger than the expected drop of 100,000 and unlike July’s revised 3,100 increase.

“We expected the labor market adjustment to lockdowns to happen much more through a reduction in hours worked rather than employment, as happened in previous lockdowns. Today’s data further supports this view, ”said UBS economist George Tharenou.

Yields on domestic treasury bonds rose on that day. At the close of business, the 3-year ACGB yield had increased 3bp to 0.36%, the 10-year yield had gained 5bp to 1.29% while the 20-year yield ended up 6bp. bp at 1.90%.

In the spot futures market, expectations of any change in the real exchange rate have remained low. Ultimately, contract prices implied that the spot rate would gradually drop from its current rate of 0.03% to around 0.19% by December 2022.

The participation rate fell significantly from 66.0% to 65.2%, while the total available workforce fell from 168,200 to 13,639,700. The number of unemployed fell from 21,900 to 617,100; the decrease in the number of unemployed outweighed the decrease in the number of people in the labor market, causing the unemployment rate to fall from 4.6% to 4.5%.

Total hours worked across Australia’s economy fell, with 78,200 residents losing part-time jobs and 68,100 residents losing full-time jobs. On a percentage basis, the total number of hours worked fell 3.7% in August after falling 0.2% in July. Year over year and after revisions, the total number of hours worked increased by 1.6% due to the increase of 25,300 part-time employees and 370,800 full-time employees more than in August 2020.

ANZ Senior Economist Catherine Birch said the result “does not derail our view that the labor market is more resilient this time around and will rebound once restrictions are relaxed.” However, she expects the unemployment rate to rise in the coming months, especially “if participation initially recovers faster than employment, as it did after the nationwide lockdown last year.” .

In recent years, more attention has been paid to the underemployment rate, which is the number of people who are working but want to work more hours than they currently do. The underemployment rate fell from 8.3% in July to 9.3%.

The underutilization rate, i.e. the sum of the underemployment rate and the unemployment rate, is strongly correlated with the annual growth rate of the private sector ABS index of wages when is brought forward by one quarter. August’s underutilization rate of 13.8% corresponds to an annual growth rate of about 2.6%.

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