Job markets cools as activity dries up - expect the property market to suffer from the fallout...

Labour force

• The unemployment rate rose from 4.9 per cent to 5.1 per cent in July. The participation rate held steady at 65.6 per cent. The working age population rose by 15,800.

• Employment fell by 100 people in July. Economists had tipped job gains of around 10,000. But the June result was revised lower to show job gains of 18,200 (previously showed job gains of 23,500).

• Full-time employment fell by 22,200 in July and part-time jobs rose by 22,100.

• Average hours worked rose 0.2 per cent in July after rising by 0.6 per cent in June. The number of hours worked is up 2.6 per cent on a year ago.

• Across the states and territories unemployment rates in July were: NSW 5.2 per cent (5.2 per cent in June); Victoria 5.1 per cent (4.6 per cent); Queensland 5.6 per cent (5.2 per cent); South Australia 5.3 per cent (5.1 per cent); Western Australia 4.0 per cent (4.2 per cent); Tasmania 5.2 per cent (5.5 per cent); Northern Territory 4.2 per cent (3.9 per cent); ACT 4.0 per cent (4.0 per cent).

• NSW led the job gains in July (up 19,700) followed by Tasmania (up 1,800) and Queensland (up 800). Victoria the job losses (down by 20,700), followed by South Australia (down 1,700), Western Australia (down 1,500), Northern Territory (down 800 in trend terms), and ACT (down 400 in trend terms).

What does it all mean?

• There are clear signs that the Aussie economy is fast losing momentum. Jobs growth is now stagnant adding to data showing sluggish retail spending, a weak housing market and lacklustre activity in manufacturing, services and construction sectors.

• Employment growth has slowed since late last year to a more sustainable rate while the jobless rate has picked up for the first time in 10 months. In fact employment growth is now at 19-month lows. In fact even if you have a look at a longer time frame, since the start of the year jobs growth has averaged a meagre 5,900 people a month – a far cry from the average 30,200 jobs that was created each month in 2010.

• The latest result is also consistent with the anecdotal evidence we are hearing from businesses outside the mining sector. Conditions are tough, and the lack of consumer spending and inherent weakness in the housing sector is filtering through to other parts of the economy. And over the next few months it is likely that businesses will remain cautious and as such hiring intentions will be curtailed.

• The rapid fire rate hikes and sluggish consumer activity is starting to show cracks in the labour market data. More and more businesses are telling us that conditions are tougher now than at the height of the global financial crisis and earlier this week the NAB business survey highlighted the weakness in business trading conditions. Profitability is being squeezed and forward orders are being pared back – all a clear sign that businesses are finding times tough.

• Reserve Bank forecasts have indicated that job creation should slow – it has – effectively ensuring conditions are more balanced in the labour market. The key question is what happens from here. While businesses are likely to pull back hiring plans due to the uncertain environment, it is unlikely that significant job losses are around the corner.

• The latest result cements our view that the Reserve Bank remains on the interest rate sidelines in the midterm. Importantly a case for a rate cut has yet to be proven. The Reserve Bank is unlikely to cut rates in an environment with such serious market volatility. In addition as the central bank has continued to point out the strength of the Chinese economy remains sound - ensuring that commodity prices are healthy and the boost to the terms of trade remains intact.

What do the figures show?

Labour force

• Employment fell 100 people in July. Economists had tipped job gains of around 10,000. The June result was revised to show job go of 18,200 (previously job gains of 23,500). Full-time employment fell by 22,200 in July and part-time jobs rose by 22,100.

• The annual employment growth rate eased from 2.0 per cent to 1.7 per cent – marking the weakest growth rate in 19 months. The unemployment rate rose from 4.9 per cent to 5.1 per cent – marking the first rise in 10 months. The participation rate held steady at 65.5 per cent.

• Average hours worked rose 0.2 per cent in July after rising by a 0.6 per cent in June. Over the year average hours worked rose by 2.6 per cent.

• Across the states and territories unemployment rates in July were: NSW 5.2 per cent (5.2 per cent in June); Victoria 5.1 per cent (4.6 per cent); Queensland 5.6 per cent (5.2 per cent); South Australia 5.3 per cent (5.1 per cent); Western Australia 4.0 per cent (4.2 per cent); Tasmania 5.2 per cent (5.5 per cent); Northern Territory 4.2 per cent (3.9 per cent); ACT 4.0 per cent (4.0 per cent).

• NSW led the job gains in July (up 19,700) followed by Tasmania (up 1,800) and Queensland (up 800). Victoria the job losses (down by 20,700), followed by South Australia (down 1,700), Western Australia (down 1,500), Northern Territory (down 800 in trend terms), and ACT (down 400 in trend terms

• The working age population rose by 15,800 in July after lifting by 19,600 in June. The working age population grew by 1.4 per cent over the past year – the smallest gain ten years.

What is the importance of the economic data?

• The Labour Force estimates are derived from a monthly survey conducted by the Bureau of Statistics. The population survey is based on a multi-stage area sample of private dwellings (currently about 22,800 houses, flats, etc.) and a sample of non-private dwellings (hotels, motels, etc.). The survey covers about 0.24 per cent of the population of Australia and includes all people over 15 years of age, except defence personnel.

• If more people are employed, then there is greater spending power in the economy. But at the same time companies may adjust the work hours of employees. If employees work less hours, and therefore get paid less, then spending power in the economy is reduced.

What are the implications for interest rates and investors?

• It is clear that the soft readings on economic activity are being reflected in the job market figures. Manufacturing, construction and the services sector all remain soft, while businesses are trimming new orders and profitability is being affected - given the lack of activity. No doubt the softer economy is ensuring that businesses remain cautious and more circumspect about future hiring.

Source: Savanth Sebastian Economist, CommSec