Australian employment surges as workers return to the labour force

Chris Scicluna

Asian markets mixed after US equities weaken as new shutdowns dominate positive vaccine news
A weak afternoon session on Wall Street yesterday afternoon left both the DJI and S&P500 down 1.2% at the close despite Pfizer confirming earlier findings that its candidate Covid-19 vaccine is 95% effective in preventing the onset of symptoms. While both Pfizer and Moderna are expected to file within days to have their vaccines certified for emergency use – albeit with only limited supply – investors appeared more interested in the ‘here and now’, with new restrictions being announced by numerous US states to try to slow the spread (New York City has shut schools and Minnesota has ordered a 4-week closure of fitness centres and onsite dining at restaurants and bars). US equity futures are little changed so far today. But an up-and-down session in the Treasury market has eventually pushed the 10Y yield back to 0.86% – a little higher than where it was this time yesterday. The US dollar has been similarly erratic, but has gained ground against most counterparts in Asian trading today (the yen being the notable exception).

Turning to Asian markets, for the most part, regional bourses have recorded a mix of small gains and losses today. In Japan, the TOPIX overcame some early weakness to close up 0.3%, even as Tokyo moved to its highest pandemic alert level (and Nagoya’s Aichi prefecture moved to the second highest level) amidst reports that new coronavirus cases were on track to top 500 today. Indeed, with Japan having reported almost 2,200 cases yesterday, PM Suga said that the country was on ‘maximum alert’ with officials and experts expected to meet tomorrow to discuss how to respond. In the meantime, Suga has urged residents to wear masks when speaking, even over dinner. Separately, however, Finance Minister Aso stated that cash handouts for households were not likely to feature in the forthcoming fiscal stimulus package as there was no longer a national state of emergency.

In China, the CSI300 increased 0.7%, outperforming other markets, even as the country was formally admonished in a statement by the ‘Five Eyes’ foreign ministers (i.e. US, UK, Canada, Australia and New Zealand) for its controversial removal of Hong Kong Legislative Councillors deemed insufficiently loyal to Beijing. More positively, speaking to other APEC leaders in an online meeting, President Xi reiterated that “Opening up to the outside world is a basic national policy, and it will not waver at any time”. Meanwhile, Australian equities rose ¼% following a much stronger than expected labour market report (see below), but ACGBs were unimpressed, with yields tracking sideways to close virtually unchanged.

Australian workers return to the labour force, lifting both employment and the jobless rate
Following on from yesterday’s very soft Q3 wages report, today the ABS released Australia’s Labour Force survey for October. The overall tone of the report was encouraging, notwithstanding a slight increase in the jobless rate, with workers flocking back to the labour force and driving employment sharply higher too. According to the survey, employment jumped 178.8k in October – contrasting starkly with the 27.5k decline that analysts had expected – albeit following a revised 42.5k decline in September (previously a 29.5k decline). Less surprisingly, employment rose almost 82k in the re-opening state of Victoria, making the single largest contribution to the overall outcome, but employment also grew solidly in all other states and territories aside from Tasmania. Encouragingly, full-time employment increased 97k in October to the highest level since March, albeit still down 238k from the pre-pandemic February peak. Meanwhile, part-time employment increased almost 82k in October and is now above the pre-pandemic level.

With employment rising sharply during the month, aggregate hours worked increased a strong 1.2%M/M to the highest level since March. Hours worked were still down 3.4%Y/Y, however (employment fell 1.0%Y/Y, implying an unsurprising reduction in average hours worked per employee over the period). The increase in labour input during October was possible due to an unexpectedly sharp recovery in the labour force participation rate to 65.8% from 64.9% previously –now just short of the pre-pandemic level. Indeed, despite the huge growth of employment during the month, growth in the labour force in October was sufficient to lift the unemployment rate by 0.1ppts to 7.0%. Nonetheless, the rise in the unemployment rate was smaller than the market had expected and at current levels is still a full percentage point below where the RBA’s recently revised forecasts indicated for the end of this year. This suggests no obvious imperative for the RBA to add further stimulus beyond that announced earlier this month. At the same time, the unemployment rate is likely to remain well above full employment levels until at least 2023, even if the economy enjoys a relatively vigorous recovery.

Euro area construction/trade data ahead; EU leaders’ teleconference to come in the evening
Europe’s main event today will be the EU leaders’ teleconference, from 6pm CET, called ostensibly to coordinate the response to the pandemic. But the leaders’ discussions might also address the impasse over the EU’s budget for 2021-27 and associated Recovery Plan (Next Generation EU), which Hungary and Poland indicated earlier this week they would veto in protest at moves to allow the suspension of funding for countries where there are concerns about the rule of law. In due course, we do expect a solution to be found, to allow the key EU Recovery and Resilience Facility – under which the EU would seek to borrow up to €672.5bn to pass on to the member states in the form of grants and loans over the coming few years – to be established in the course of 2021.

If Hungary and Poland do not back down, the Recovery Plan funds would likely need to be raised by a new SPV established, like the ESM, by intergovernmental treaty, rather than the European Commission. On balance, however, we expect the two Central European member states to concede and remove their vetoes – perhaps in return for some kind of non-binding political declaration – if only because their government budgets will be the biggest losers (at the cost of about 11% of GDP each) if the other member states press ahead without them. We suspect, however, that the agreement will not be reached until the next leaders’ summit on 10 December.

Meanwhile, on the data front, today will bring euro area construction output data for September – following four successive months of growth, production will likely post a sizeable decline due not least to a plunge of 8.4%M/M already reported in France. The ECB’s balance of payments data for the same month are also due, and seem set to report a further increase in the current account surplus on account of the increased goods trade surplus, as exports continue to outpace imports.

Today’s UK CBI Industrial Trends Survey may contain mixed messages
Today will bring the CBI’s latest industrial trends survey. While production might well currently be boosted by precautionary stock-building associated with uncertainty related to the end of the Brexit transition period at the end of the year, new factory orders might well have weakened for the very same reason.

Existing home sales and regional factory surveys complete this week’s US data flow today
Today’s US economic diary features a number of releases. In contrast to other housing indicators released this week – including yesterday’s solid lift in housing starts – earlier reported pending homes sales suggest that existing home sales are likely to record a slight dip in October (albeit from already elevated levels). Following the disappointing NY Fed manufacturing survey released earlier this week, the latest manufacturing surveys from both the Philadelphia and Kansas Fed will also be of some interest to see whether a broader slowdown in momentum might be at play. Finally, today will also bring the Conference Board’s leading indicator for October and the weekly jobless claims report.

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