Unemployment Rate Falls But So Does Participation

The Australian Dollar came under pressure overnight in response to the latest Australian labour market data. The Unemployment rate moved lower in September, falling to 5.6% from 5.7% previous. This marks the lowest Unemployment rate since May 2013. However, the decline wasn’t driven by a strengthening of the labour force, but instead, a sharp drop in participation as the labour force shrank by 10k.The other key feature of the data is that it reflects a continued shift from full-time to part-time employment.

Full-time employment fell by 53k in September and is down 0.4% YoY. However, part-time employment rose by 43k over the same period and is up 5.4% YoY. As a result of this trend, measures of labour market utilisation have not tracked the improvement in the Unemployment rate over the year.  The participation rate has fallen to 64.5%, marking the lowest level since October 2014.

Overall Employment Has Slowed

The recent trend in employment growth is a negative signal for the Australian economy with overall employment growth having slowed to just 6000 jobs a month over the last six months. Fortunately, other labour market indicators have not shown the same degree of deterioration; business and consumer confidence remain firm, and job advertisements are on the increase. The official labour market survey has also faced issues with shifting seasonal patterns over the last few years which mean that other labour market measures might actually give a better read on real conditions.

However, there is an alternative reason for viewing the decline in Unemployment over the year as potentially overstating the strength of the Australian labour market.Underemployment (part-time workers who would like to work full time) has not shown much improvement. This could be due to the fact that employment is increasing fastest in the services sector which jobs are most likely to be part time.

The labour market appears to have stabilised over the year rather than significantly improved and trends in participation and the skew of full-time/part-time work need to be watched closely.

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The Australian Dollar was rebuffed from trend line resistance overnight, running from the year to date highs. For now, the Aussie remains framed by the contracting triangle pattern sitting within a broader bullish channel.

BOC “Actively Discussed” Easing

The Bank of Canada kept rates on hold at their October meeting as expected. However, the tone of the accompanying Monetary Policy Report was broadly Dovish with the bank lowering their growth forecasts over 2016 and 2017. The bank also noted that members “actively discussed” easing policy at the meeting in line with their lowered outlook but opted to refrain due to “significant uncertainties” which include the new housing measures and the impact of fiscal stimulus.

The bank also lowered their core inflation forecasts including a 0.3% downward revision to 2017 Q4 as a result of the after effects of energy prices and exchange rate pass-through have worked themselves out.  The BOC remain cautious on export growth highlighting several structural reasons for their underperformance including lower business investment and higher unit labour costs vs. USD.

On housing, the bank remained faithful to their long-term view by stating that more stringent macroprudential measures would not be an impediment to further monetary easing. In terms of the input from fiscal stimulus, the bank noted that they expect to see an impact from the Canada Child Benefit program starting to materialise in data later this year.

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The Canadian Dollar initially strengthened in response to the “unchanged” rate decision however gains were soon sharply reversed as details of the monetary policy report filtered through. The bank’s admission to having discussed easing at this meeting has furthered boosted easing expectations and traders now look for the bank to cut rates further by the end of the year.