Boring but the trend is our friend

The world of financial markets and tea-leaves reading would be a boring place if not for "seasonality adjusted" estimates of economic statistics, especially ones that go up one month and down the next and/or beat expectations one month and disappoint the next, or vice-versa.

The seasonally-adjusted estimates for January of the Australian Bureau of Statistics' (ABS) 'Labour Force' report once again sparked divergent views on the true state of the domestic labour market.

The headline numbers were certainly positive: Total employment rose by 13,500 in January, more than the expected 10,000 addition and followed the previous month's strong 16,300 gain; the unemployment rate declined to 5.7%, also better than market expectations that it would remain unchanged from December's 5.8% rate.

The not so positive news: While the annual growth rate in total employment accelerated - to 0.9% in January from 0.8% in the previous month, it marked fourth straight month of sub-1.0% year-on-year growth. This is also a steady deceleration from 2.5% in January last year and 2.0% in June 2016.

As for the decline in the unemployment rate in January, the fall in the participation rate to 64.6% from 64.7% in December helps explain this - indicating that workers are discouraged from looking for jobs. This is underscored in the February Westpac Melbourne Institute consumer sentiment survey that showed "unemployment expectations" increased by 3.1% this month - suggesting more consumers expect unemployment to rise in the year ahead.

In addition, the details of the Labour Force report showed that the growth in total employment in January was all due to the resurgence in part-time jobs - up 58,300 over the month - that was offset by a 44,800 slump in full-time workers.

Year-on-year, full-time jobs decreased by 0.7% in January, quickening from the 0.4% fall in December and 0.3% decline in November. Annual growth in part-time jobs accelerated over the same period to 4.3% in January from 3.4% in December and 2.9% in November.

This presents a negative indication for consumer sentiment and consumer spending. As the "permanent income hypothesis" states, consumer spending depends on workers' expectations of the permanency of their current and future incomes - full-timers' income are expected to be more "permanent" than their part-time counterparts.

However, the significant improvement in business confidence and conditions offer some hope. Unlike the seemingly inconsistent result from the December survey - where business conditions gained 4 points while business confidence was flat - January's NAB business survey showed business conditions increased by 6 points to a reading of +16 - the highest since October 2007 -- while confidence rose by 4 points to +10 - the highest since February 2014.

The details of the survey showed that the buoyant January result was due to the continued improvement in trading conditions - up to a reading of 22 in January from 17 in December and 11 in November - as well as in employment which rose to a reading of 7 in January from 2 in both December and November.

Less exciting but one that provides a better picture of the labour market is the ABS' trend estimates. According to the ABS:

Employment increased 11,700 to 11,984,300, reflecting an increase in both full-time (6,500) and part-time (5,100) employment.
Unemployment increased 2,800 to 726,100.
Unemployment rate remained steady at 5.7%.
Participation rate remained steady at 64.6%.
Monthly hours worked in all jobs increased 3.6 million hours to 1,676.0 million hours.

The trend is our friend. This is the reason why "The ABS encourages the use of the trend series". Because "The trend series smooth the more volatile seasonally adjusted estimates and provide the best measure of the underlying behaviour of the labour market".

Read more: EmploymentABSLabour Forceunemployment rateAustralian Bureau of StatisticsWestpac Melbourne Institute consumer sentimentNAB business survey
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