Weekly Market & Currency Developments – From Our Bankers

Aussie jobless rate at 10-year low

Queensland population growth rate at 5-year high

Labour force; Population

  • Employment rose by 4,600 in February after a revised 38,300 increase in jobs in January (previously reported as a 39,100 increase in jobs). Full-time jobs fell by 7,300, but part-time jobs rose by 11,900. Economists had tipped an increase in total jobs of around 15,000.
  • Hours worked rose by 0.2 per cent in the month to be up 2.2 per cent over the year.
  • The unemployment rate fell to a 10-year low of 4.9 per cent in seasonally adjusted terms. In trend terms the jobless rate remained steady at a 10-year low of 5.0 per cent (previously 5.1 per cent).
  • Participation rate: The participation rate fell from 65.7 per cent to 65.6 per cent. In trend terms the 65.6 per cent participation rate remained at record highs.
  • Unemployment across states in February: NSW 4.3 per cent (January 3.9 per cent); Victoria 4.8 per cent (4.6 per cent); Queensland 5.4 per cent (6.1 per cent); South Australia 5.7 per cent (6.3 per cent); Western Australia 5.9 per cent (6.9 per cent); Tasmania 6.5 per cent (7.0 per cent). In trend terms, Northern Territory 4.9 per cent (4.9 per cent); ACT 3.5 per cent (3.5 per cent).
  • Population: Australia’s population expanded by 395,101 people over the year to September 2018 to 25,101,917 people. Overall, Australia’s annual population growth rate rose from 1.59 to 1.60 per cent.Queensland’s annual population growth rate is at 5-year highs of 1.74 per cent and Tasmania’s annualpopulation growth rate is at 9-year highs of 1.15 per cent.

A raft of companies is affected by the employment data but especially those dependent on consumer spending. Amongst stocks affected are Fairfax, West Australian Newspapers, Seek Limited, McMillan Shakespeare and Skilled Group. The demographic data on jobs provides insights on the job market, wages and prices, and ultimately on interest rates.

What does it all mean?

  • The Aussie jobless rate fell to decade lows in February at 4.9 per cent in seasonally adjusted terms. In trend terms, a healthy 290,700 people secured jobs over the past 12 months. In Queensland, the unemployment rate fell to 61⁄2- year lows of 5.4 per cent in seasonally adjusted terms.
  • Underneath the bonnet, there was some weakness. The participation rate fell a little and full-time jobs were down after a blockbuster result in January. Seasonality may have played its part.
  • Last year, Reserve Bank policymakers were fixated about the wage ‘puzzle’. With strong jobs growth failing to translate into pay rises and stoke inflation, economists pondered why the“old” Phillips Curve relationship between unemployment and prices had seemingly broken down.
  • Fast forward to 2019 and the same Reserve Bank
    policymakers are now grappling with a different ‘puzzle’ – tensions between strength in the labour market and slowing economic growth.
  • And as highlighted in its minutes on Tuesday, Board members said that developments in the labour market were“particularly important” to the economic outlook and interest rate settings.
  • With that in mind, February’s weaker-than-expected jobs growth may increase market expectations for an interest rate cut, particularly on the back of a weak run of data releases.
  • GDP growth, retail sales, business/consumer confidence, building approvals, home prices, services activity and construction gauges have all underwhelmed in recent weeks, pointing a loss of economic momentum.
  • But this is no different to most developed economies globally, with central banks adopting a ‘dovish’ and data- dependent policy pivot as they cautiously await the resolutions of the China-US trade war and Brexit.
  • The concern for Aussie policymakers is that jobs growth and hiring appears to have peaked in 2018. Leading indicators of jobs growth such as the ANZ and SEEK job ads series and Department of Small Business and Jobs’skilled internet job vacancies survey have eased from 6-7 year highs.
  • While business conditions still remain broadly supportive, confidence is at 3-year lows. Slowing global and domestic demand, a weak retail environment, the drought, property downturn, political uncertainty and increaseddifficulties for small businesses in obtaining credit from banks may hinder firms’ investment and hiring intentions.
  • Either way, the NAB employment index currently implies average monthly jobs gains of 19,000 this year, so the unemployment rate appears set to stabilise around 10-year lows of 5 per cent in the near term. With over one million Aussies working two jobs and more indicating a desire to work more hours, as represented by the still-high underemployment rate, there is still spare capacity in the labour market. As evidenced by the US and UK jobs markets, Aussie wages growth is unlikely to reach 3-31⁄2 per cent until the labour market tightens to the extent that the national unemployment rate is closer to 4 per cent.

What do the figures show?

  • Employment rose by 4,600 in February after a revised 38,300 increase in jobs in January (previously reported as a 39,100 increase in jobs). Full-time jobs fell by 7,300, but part-time jobs rose by 11,900. Economists had tipped an increase in total jobs of around 15,000.
  • Annual job growth rose from 2.2 per cent to 2.3 per cent (decade average 1.6 per cent).
  • Hours worked rose by 0.2 per cent in the month to be up 2.2 per cent over the year.
  • The unemployment rate fell to a 10-year low of 4.9 per cent in seasonally adjusted terms. In trend terms the jobless rate remained steady at a 10-year low of 5.0 per cent (previously 5.1 per cent).
  • Participation rate: The participation rate fell from 65.7 per cent to 65.6 per cent. In trend terms the 65.6 per cent participation rate remained at record highs.
  • Unemployment across states in February: NSW 4.3 per cent (January 3.9 per cent); Victoria 4.8 per cent (4.6 per cent); Queensland 5.4 per cent (6.1 per cent); South Australia 5.7 per cent (6.3 per cent); Western Australia 5.9 per cent (6.9 per cent); Tasmania 6.5 per cent (7.0 per cent). In trend terms, Northern Territory 4.9 per cent (4.9 per cent); ACT 3.5 per cent (3.5 per cent).
  • State/Territory jobs: In seasonally adjusted terms, the largest increases in employment were in Queensland (up 6,400) and Victoria (up 5,700 persons), followed by South Australia (up 3,800 persons) and Western Australia (up 2,800 persons). The largest decrease was in New South Wales (down 5,800 persons).
  • The working age population rose by 39,000 in February to 20.48 million. Over the year the working age population rose by 357,000 or a 6-year high of 1.77 per cent, but this is still down from the record 2.36 per cent annual growth in December 2008.
  • The monthly trend underemployment rate fell from 8.2 per cent to 41⁄2-year lows of 8.1 per cent in February. The monthly underutilisation rate fell from 13.2 per cent to 51⁄2-year lows of 13.1 per cent.
  • The monthly seasonally adjusted underemployment rate was steady at 41⁄2-year lows of 8.1 per cent in February. The monthly underutilisation rate decreased by 0.2 percentage points to 13.0 per cent – the lowest in 51⁄2 years.

Population Statistics

  • Australia’s population expanded by 395,101 people over the year to September 2018 to 25,101,917 people.Overall, Australia’s annual population growth rate rose from 1.59 to 1.60 per cent. Natural increase contributed 39.2 per cent to the annual lift in population with 60.8 per cent from migration.
  • Over the past year population growth was strongest in Victoria (2.20 per cent), followed by the ACT (1.93 per cent), Queensland (1.74 per cent), NSW (1.51 per cent), Tasmania (1.15 per cent), Western Australia (0.88 per cent), South Australia (0.79 per cent) and the Northern Territory (-0.18 per cent).
  • Tasmania’s annual population growth rate at 1.15 per cent is the highest since June 2009.
  • Australia’s population grew by 109,057 people over the September quarter, after growing by 92,160 people in theJune quarter.
  • A total of 240,100 people migrated to Australia over year to September, up from 237,200 people in the year to June. Migration growth is down from the peak of 315,700 migrants in the year to December 2008.
  • There were 312,600 babies born in the year to September. And there were 157,500 deaths in the past year, down 3,500 on the year to June 2018.
  • Natural increase for the year September was 155,100, the most in four years, up by 5.2 per cent.

Why is the data important?

  • 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.
  • Demographic Statistics are issued by the Bureau of Statistics each quarter. The figures include estimates of births, deaths, in-bound and out-bound migration movements and estimates of population change by State.

What are the implications?

  • Today’s jobs report was mixed. While the headline job numbers disappointed, the Aussie jobless rate has a ‘4’ handle in front of it. The unemployment rate is the equal lowest in a decade.
  • Another positive development was that unemployment fell in the mining states of Queensland and Western Australia. Full-time jobs growth over the past two years has been strong in the Sunshine State, perhaps why annual population growth has lifted to 5-year highs.
  • But a fall in job creation in NSW in February is a concern, given falling home prices and household spending. The unemployment rate rose from the lowest levels since the 1970s.
  • Aussies still want to work more hours as evidenced by the still-elevated underemployment rate of near 8 per cent. So there is still spare capacity in the Aussie labour market. The national unemployment rate needs to be closer to 4 per cent to lift wages growth and stir inflation.
  • The Federal Government is advocating a ‘new’ population plan, directing skilled overseas migrants to regional areas. Tassie may soon be ‘bursting at the seams’, so perhaps a focus on the ‘Top End’ could balance it out. Annual population growth in Northern Territory at -0.18 per cent in September is the weakest in 15 years.
  • Experts don’t expect a change in interest rates for the foreseeable future.

US interest rates: Pivot to “patience”

US Federal Reserve meeting

  • US Federal Reserve decision: As widely expected, the US Federal Reserve’s Open Market Committee (“FOMC”) kept the target range for the federal funds rate between 2.25-2.50 per cent.
  • US interest rate outlook: The FOMC is now forecasting no rate changes in 2019 (previously forecast two).
  • Balance sheet unwind: The Fed also announced a plan to stop reducing its asset holdings by September2019 and change the composition of its assets in favour of Treasury securities.

Changes in US monetary policy settings can affect rates in Australia as well as the sharemarket and currency.

What did the Fed decide and what does it all mean?

  • The US Federal Reserve is likely to stay on the interest rate sidelines over 2019, reiterating that it will be “patient”amid “global economic and financial developments and muted inflation pressures.” In his press conference, Chair Jerome Powell said “it may be some time before the outlook for jobs and inflation calls clearly for a change inpolicy.” The ‘dovish’ outcome and forward guidance will provide some certainty for investors.
  • The median federal funds target projections were adjusted. The FOMC’s Summary of Economic Projectionsshows the median federal funds rate projections (“dot plot”) with no interest rate changes expected in 2019 (previously two rate hikes to 2.9 per cent). The projection for the federal funds rate in 2020 is now 2.6 per cent (previously 3.1 per cent) and in 2021 the fed funds rate is now seen at 2.6 per cent (previously 3.1 per cent).
  • The FOMC updated its GDP and unemployment rate projections. The FOMC projects GDP growth of 2.1 per cent in 2019 (previously 2.3 per cent); 1.9 per cent in 2020 (previously 2.0 per cent), and 1.8 per cent in 2021 (unchanged). Meanwhile, the FOMC expects the unemployment to be 3.7 per cent in 2019 (previously 3.5 per cent), 3.8 per cent in 2020 (previously 3.6 per cent) and 3.9 per cent in 2021 (previously 3.8 per cent).
  • On consumer prices, core PCE inflation is expected to be 2.0 per cent in 2019-2021 (unchanged).

What are the implications of today’s decision?

  • The US central bank has reinforced its neutral policy stance. Policymakers continue to advocate a “patient” and data-dependent approach to interest rate settings. With inflation contained and the US economy encountering“crosscurrents and conflicting signals”, such as slowing global growth, Brexit uncertainty and the US-China trade war, the Fed can afford to take its time assessing economic conditions as they evolve.
  • The US economy is expected to slow in the March quarter. Seasonality and severe winter weather have impacted retail spending and temporarily stalled labour hiring. That said, the unemployment rate at 3.8 per cent is the lowest in 50 years and annual wages growth at 3.4 per cent is the strongest in a decade.
  • After being on auto-pilot, the Fed has announced that it will end the gradual run-down of its US$3.8 trillion balance sheet in September. It will cut the pace of its monthly redemptions in half to US$15 billion beginning in May. The balance sheet is expected to shrink to US$3.5 trillion by September.
  • US sharemarkets were volatile during Wednesday’s trading session with The Dow Jones index closing down by 141 points or 0.6%. The S&P 500 index fell by 0.3 per cent. But the Nasdaq index rose by 5 points or 0.1 per cent. Investors initially cheered the Fed’s more accommodative policy stance, but US 10-year government bond yields fell to 13-month low of 2.53 per cent, pressuring bank shares, which pulled down the broader market.
  • The Aussie dollar rose from lows of US70.71 cents to highs near US71.48 cents and was near US71.25 in late US trade. Economists expect the Aussie dollar to finish the year near US72 cents.

Spending growth lifts in February

  • Economy-wide spending is growing at the fastest rate in nine months according to our Business Sales Indicator (BSI). The BSI, a measure of economy-wide spending, rose by 0.5 per cent in February after a similar lift in January. Spending growth remains above the 0.4 per cent long-term average monthly growth pace.
  • The annual trend sales growth eased from 5.1 per cent to a 14-month low of 5.0 per cent in February, below the 5.5 per cent long-term average growth pace.
  • The more volatile seasonally-adjusted measure of the BSI rose by 0.6 per cent in February, the eighth gain in 10 months.
  • At a sectoral level, 13 of 19 industry sectors rose in trend terms in February, down from 14 sectors in January.
  • Spending rose across all states and territories in February except Northern Territory.
  • This BSI is obtained by tracking the value of credit and debit card transactions processed through our merchant facilities. The BSI covers spending broadly across the economy rather than just retail sales, including spending on automobiles, personal services and airlines.

What does it all mean?

  • Spending continues to lift across the economy at a faster pace than the long-term average. Travel-related spending remains healthy, perhaps reflecting a weaker Aussie dollar, lower petrol prices and a drop in airfares. The strength in domestic travel remains a positive driver for tourist regions.
  • Business and government are restraining spending while consumers are cutting back on big-ticket purchases like cars.

What does the data show?

  • The Business Sales Indicator (BSI) – a measure of economy-wide spending – rose by 0.5 per cent in trend terms in February after a similar rise in January. Economy-wide sales have now consistently lifted each month for
    over two years.
  • The growth pace started lifting in March 2017 and over the period from October 2017 to January 2018 the BSI consistently recorded monthly gains of between 0.7-0.9 per cent a month. Growth in sales has held between 0.3-0.6 per cent a month for the past 13 months, picking up pace over December and January. Current growth is slightly above the long-term average pace of 0.4 per cent.
  • The annual trend sales growth eased from 5.1 per cent to a 14- month low of 5.0 per cent in February, below the 5.5 per cent long-term average growth pace.
  • The more volatile seasonally-adjusted measure of the BSI rose by 0.6 per cent in February, the eighth gain in 10 months.
  • The BSI is obtained by tracking the value of credit and debit card transactions processed through the merchant facilities. And in line with the practice of the Bureau of Statistics with retail trade data, seasonally adjusted and trend estimates of the BSI are obtained by applying statistical software. The seasonally adjusted and trend BSI results permit analysis of the broader underlying trends that may be hidden in the raw data.
  • Across sectors, 13 of the 19 industry sectors rose in trend terms in February. Amongst the biggest gains in sales were Retail Stores (up 2.5 per cent); Transportation (up 2.0 per cent); and Airlines (up 1.7 per cent).
  • Sales fell most in Mail Order/Telephone Order Providers (down 1.2 per cent); Automobiles & Vehicles and Business Services (both down by 0.3 per cent); and Government Services (down by 0.2 per cent).
  • Airlines posted the strongest gain in sales in 19 months in February. In contrast, Government Services sales have now fallen for eight straight months.
  • In annual terms in February, all but four of the 19 industry sectors recorded gains. Spending fell by 3.8 per cent over the past year in Government Services with Automobile/Vehicle Rentals down 2.3 per cent; Clothing down 1.4 per cent; and Automobiles & Vehicles down 1.1 per cent.
  • At the other end of the scale, sectors with strongest annual growth in February included Retail Stores, Transportation, Airlines and Hotels & Motels.
  • Sales were stronger across all states and territories in February except Northern Territory (down 0.3 per cent). The strongest growth occurred in Western Australia (up 1.0 per cent) followed by NSW (up 0.7 per cent); Tasmania (up 0.5 per cent); ACT and South Australia (both up 0.4 per cent); Victoria (up 0.3 per cent) and Queensland (up 0.1 per cent).
  • In annual terms all states and territories had sales above a year ago except Northern Territory (down 4.2 per cent). The strongest growth was in Western Australia (up 8.1 per cent) from Tasmania (up 6.6 per cent). Slowest growth was in South Australia (up 3.2 per cent).

What is the importance of the report?

  • The Business Sales Index (BSI) is released around the 20th each month. The data provides a broader perspective of consumer spending. The BSI includes transactions made at traditional retail establishments such as supermarkets, clothing stores and cafes & restaurants. But it is more comparable to the ABS Household Final Consumption Expenditure released on a quarterly basis. The Business Sales Indicator also covers businesses such as airlines, car dealers and utilities such as water and electricity companies as well as motels, business, professional and government services and wholesalers.

What are the implications for interest rates and investors?

  • As long as jobs are created and job security remains strong then Aussie consumers will spend. And the extra dollars should flow through to business and support business-to-business spending as well as employment. The job market is crucial to the outlook for interest rates.
  • Experts continue to expect stable interest rate settings for the foreseeable future.

Investor Signposts: Week Beginning March 24 2019

Australia: Quiet week with focus on ‘second tier’ data

  • In the coming week economists will likely be doing early preparations for the Federal Budget. Because clearly there isn’t too much in the way of influential economic events.
  • The week kicks off on Tuesday with a speech from Luci Ellis, Assistant Governor (Economic), at the Housing Industry Association March Industry Outlook breakfast.
  • Clearly housing issues are very much centre-stage at present, especially the correction of housing activity and home prices underway in Sydney and Melbourne.
  • Also on Tuesday, the regular weekly reading on consumer confidence is published by ANZ and Roy Morgan.
  • Recently, confidence has been volatile from week-to-week but the actual index of confidence isn’t far away from longer-term averages. So consumers aren’t gloomy, more ambivalent.
  • On Wednesday the focus is on ‘panel participation’ by Christopher Kent, Assistant Governor (Financial Markets) at the FX Week Australia event in Sydney.
  • Also on Wednesday, the Australian Bureau of Statistics will release data on regional population growth for the 2017/18 year. The ABS also releases December quarter figures on engineering construction. A boom in infrastructure spending is underway so the latest ABS data will put the spotlight on how much activity remains to be completed.
  • On Thursday, the ABS releases detailed estimates on the job market for February. The data will include industry estimates of employment. Job vacancies data is also released – currently at record highs.
  • Also on Thursday, the ABS releases the ‘Finance and
    Wealth’ estimates for the December quarter. The figures include data on household wealth – likely to show a fall, but this is also likely to be partially reversed in the current quarter given the strong sharemarket.
  • On Friday, the Reserve Bank releases the ‘Financial Aggregates’ publication, including the latest money supply and lending aggregates. The Australian Prudential Regulation Authority (APRA) also issues the February data on bank deposits and lending, including credit card data.

Overseas: US inflation & growth in focus

  • Key US economic growth and inflation measures are the key interest points in the coming week.
  • The week begins on Monday in the US when the Chicago Federal Reserve national activity index is released with the Dallas Federal Reserve manufacturing index.
  • On Tuesday in the US, it’s a big day for new information on the housing market. The February figures on building permits and housing starts are released. Also the S&P/Case Shiller home price index is issued with the FHFA measure on home prices. The March reading of consumer confidence is also issued with the influential Richmond Federal Reserve manufacturing index. The usual weekly data on chain store sales is also scheduled.
  • The S&P/Case Shiller measure of home prices stood 4.2 per cent higher than a year ago in December – a four- year low and down from the 4.6 per cent annual gain in November.
  • Housing starts posted a huge 18.6 per cent lift in January so the February data is likely to show some retracement.
  • On Wednesday in the US, the January international trade data is issued. In December the deficit widened from US$50.3 billion to US$59.8 billion. The trade deficit over 2018 was at a 10-year high.
  • Also on Wednesday in the US, the broader December quarter current account data is released with the weekly measure of mortgage applications.
  • On Thursday in the US, the final estimate of economic growth for the March quarter. The initial estimate was put at a 2.6 per cent annual rate. But the thinking is that the growth estimate may be revised down in light of the widening of the trade deficit revealed for December.
  • Also on Thursday in the US, the usual weekly data on claims for unemployment insurance is released with pending home sales and the Kansas Federal Reserve manufacturing index.
  • On Friday in the US, personal income & spending data will be released with the Chicago purchasing managers index, weekly consumer sentiment and new home sales.
  • Most interest is in the income and spending data. But not specifically for those measures, but rather the accompanying inflation data. The core personal consumption deflator is theFederal Reserve’s favoured inflation measure. Annual inflation sits at 1.9 per cent – below the 2 per cent target.
  • There are also no fewer than 11 talks from US Federal Reserve officials to watch over the week.
  • In China, the only real interest will be in the January/February data on industrial profits – due for release on Wednesday.

DISCLAIMER

This Freightplus article contains information obtained from sources believed to be reliable and has been prepared in good faith and with all reasonable care. Freightplus makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this website.

Neither Freightplus (Australia) Pty Ltd, its related entities, nor any of its providers of information, have any liability to the user, or any other third party, for the accuracy of the information or models contained in this article, or for any errors or omissions therein, nor will Freightplus (Australia) Pty Ltd or any of its providers of information have any liability for the use, interpretation or implementation of the information or models contained herein by any person.



Archives

Freightplus. Worldwide.

LOOKING TO MOVE MINING & CONSTRUCTION MACHINERY?
DD
Translate »