May 22, 2017
Australian Markets Weekly: 22 May 2017
How much spare capacity is in the labour market?
- In this week’s Weekly we look at the hours worked component of the labour force survey, which was the only soft spot in an otherwise stellar employment report last week. While employment rose a strong 37.4k m/m in April, the total number of hours worked was reported to have fallen by 4.3m hours (or -0.3% m/m)!
- We caution against reading too much into the hours component of the labour force survey which tends to be extremely volatile on a monthly basis. The reported weakness in hours was driven by less full-time hours, which also tends to be the most volatile component. Drilling into the details reveals recent full-time jobs growth has come from those working 35-39 hours a week, while there are now fewer people working more than 40 hours a week – a trend that has been established since mid‑2016.
- The RBA is also paying close attention to trends in hours worked. The May Board Minutes last week noted: “understanding the degree of spare capacity in the economy required an assessment of the additional hours part-time workers were willing and able to contribute as well as the number of unemployed people”.
- Our analysis finds that part‑time workers are working on average 50% of a full-time working week (or 17½ hours a week on average). It is unclear how many additional hours these part‑time employees would desire to work and there are many uncertainties in estimating an hours based measure of spare capacity. According to the ABS, those who identified themselves as underemployed (making up around 30% of part-time employed) wished to work on average an additional 14 hours a week. Combining this with the unemployment rate, results in an hours based estimate of spare capacity of around 8.4% (nsa), a measure that has only fallen slightly from 8.6% in 2015 .
For full analysis, download attached report:
For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets