More fires than hires

Markets received their regular does of adrenalin again yesterday when the Australian Bureau of Statistics (ABS) released its latest stats on the country's labour market.

The seasonally adjusted numbers showed total employment dropped by 6,400 in February following the addition of 13,500 workers in the previous month as a 33,500 decline in part-time jobs overwhelmed the 27,100 gain in full-time positions.

This represented a big miss on market expectations for an addition of 16,000 staff for February. These are rational expectations given the lead from recent business and consumer confidence outcomes.

"The February NAB Monthly Business Survey gave back the surprisingly strong gains seen in the previous month although both conditions and confidence remain at above average levels ... despite the pull-back, both of these indicators remain at levels consistent with solid business activity in the near-term, and are higher than through much of H2 2016." (NAB)

"The Westpac Melbourne Institute Index of Unemployment expectations fell by 3.1% in March pushing the Index back to around the levels in December." (WBC)

Even the RBA noted as much in its March policy statement: "The forward-looking indicators point to continued expansion in employment over the period ahead."

Even more surprising, the seasonally adjusted unemployment rate rose to 5.9% in February from 5.7% in the previous month, and the participation rate could not be used as an excuse for it remained unchanged 64.6%.

The year-over-year figures indicate a softening in the Australian labour market with growth in total employment slowing to 0.88% in the year to February from 0.93% in the previous month, While full-time employment improved -to -0.28% from -0.61% -- the annual growth rate remained in contraction (for the sixth straight month). Similarly, part-time jobs growth eased to 3.4% from 4.3%.

Even the ABS' trend estimate of total employment shows decelerating jobs growth. Trend employment grew by 11,600 in February from 12,400 in January and 13,500 in December.

What is more, the ABS' measure of slack in the labour market had been growing. The seasonally adjusted estimate shows the underutilisation rate - "the sum of the number of persons unemployed and the number of persons in underemployment, expressed as a proportion of the labour force" -- rose to 14.6% in February from 14.1% in November 2016. The trend estimate increased to 14.4% in February from 14.3% three months before.

While markets don't expect the RBA to alter interest rate settings this year (but pricing in two rate hikes next year, according to WBC), the growing labour marketslack, along with A$ strength - it has appreciated by 6.0% versus the US$ and 4.5% on the trade weighted index (TWI) this year to date - and still below target inflation - put pressure on the Australian central bank for another rate cut.

However, this is easier said than done due to the continued bump in property prices and expectations for further gains. The WBC-Melbourne Institute "house expectations index" jumped by 2.2% in March from February and by 26.7% from a year earlier.

RBA Assistant Governor (Financial System) Michele Bullock just recently underscored the Australian central bank's role of maintaining "overall financial stability" and considering tightening measures to cool the property market.

In this regard, the RBA would be grateful to NAB's recent announcement (especially if the other lenders follow) raising its mortgage rates -- variable interest rate on owner-occupiers' loans lifted from 5.25% to 5.32%; residential investment home loans from 5.55% to 5.80% starting 24 March - because its targeted at the property market and should not affect interest rates on other economic agents.

The hope is that this would gently cool the property market. The risk is ... the property market freezes.

Read more: employmentWBCABSunemploymentWestpac Melbourne Institute Index of consumer sentimentAustralian Bureau of StatisticsNAB Business SurveyRBA Assistant Governor Financial System Michele Bullock
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