Employment stalls: mid-cycle slowing or something more?

Our feature article in this Weekly delves into the recent slowdown in employment, which if it continued into 2017 could be the catalyst for further RBA easing.

By

  • In this weekly, we delve further behind Australia’s employment data where trend employment growth has stalled. The last time trend employment was so weak was
    in mid-2013.
  • The slowing is coming from NSW (and to some extent Vic). SEEK Job Ads suggests this might be partly attributable to a slowing in new jobs generated from the housing sector– it’s even possible the peak in residential construction might be nearer than thought. Combined with continued evident job shedding in the mining sector (especially in WA), spare capacity in the labour market is set to grow (note around 13‑15k jobs a month are needed to keep the unemployment rate from rising).
  • As for markets, the boost to bond yields, equities and the US dollar has continued. Fed Chair Yellen indicated that a December rate hike was likely – the market currently prices in a 96% chance. Dr Yellen also obliquely indicated (via referencing market pricing) that an expected US fiscal expansion under a Trump Administration is expected to push up inflation. Despite that, the Fed Chair continued to temper expectations for Fed policy into next year stating the economy only warrants “gradual increases”. In tacit approval for recent US dollar strength and associated tightening in financial conditions, the Fed’s Dudley also said there was nothing concerning with recent financial market movements.
  • A light calendar increases the chances further that markets will pay more attention to geopolitical events (after having been wrong-footed by Brexit and the US election).
    Key events include the coming OPEC meeting (30 Nov); the Italian Constitutional Referendum (4 Dec) on which PM Renzi has staked his leadership; the French Presidential Election (April-May) now getting wire coverage where Eurosceptic LePen is polling at 30%; and the German Federal Election (Oct 2016).
  • NAB’s FX Strategy team have also today published revised forecasts for the EUR, JPY, GBP and CNY. Forecasts for AUD and NZD versus the USD are unchanged since there was already a substantial depreciation built in to our 2017 and early 2018 forecasts.

Please refer attached PDF for details.