Australian labor market momentum likely slowed in July, but expected to accelerate through Q3

Labor market momentum is likely to have slowed at the beginning of the third quarter in Australia. Relatively moderate output growth in the second quarter, certain sample rotation problems and trend reversion following exceptional strength through the second half of 2015 are the factors pointing towards a weak labor market report for July, said Societe Generale in a research report.

In particular, the outgoing rotation growth, which came in November 2015, had a much higher employment ratio and a 1.1 percentage point lower jobless rate than the total sample. This was seen in the eye-popping 73,000 employment growth back then. Therefore employment is likely to have grown just 5,000, while the risks are tilted towards an even weaker outcome.

“We also expect a 6k increase in unemployment, which would push the unemployment rate very close to the rounding point up to 5.9 percent (unrounded we expect 5.84 percent from 5.79 percent), despite a decline in the participation rate,” added Societe Generale.

But, employment growth is expected to continue to be at 1.6 percent year-on-year, which is still a growth rate above that of the population of working age that is currently running at 1.5 percent. As output is likely to continue expanding strongly, employment growth is expected to accelerate through the remainder of the third quarter and the jobless rate is anticipated to go back on its downward trend, according to Societe Generale.