Aussie hiring slowdown undercuts RBA narrative Aussie hiring slowdown undercuts RBA narrative Aussie hiring slowdown undercuts RBA narrative

Aussie hiring slowdown undercuts RBA narrative

Macro 7 minutes to read

Summary:  The Reserve Bank of Australia has pinned its policy forecasts to projected labour market strength, but the latest business conditions data show a hiring slowdown. Will Australia's central bank pivot to an easing stance to accomodate the slowdown?


Australian business conditions have continued to deteriorate in 2019 according to the NAB Business Survey for February, pointing to a continued slowdown of economic growth momentum ahead. Today’s business survey highlights that pressure within the business sector is building.

The slide in slowdown in economic growth, both globally and locally, is spilling over into the business sector with profitability taking a hit. This comes as the Q3 and Q4 2018 GDP readings now confirm that the domestic economy recorded the two weakest quarters of growth since the financial crisis as household spending continues to drag on growth. Last week’s weak Q4 GDP report, where GDP growth slowed to 2.3% year-on-year (well below the Reserve Bank of Australia’s 3% target), highlighted the loss in economic growth momentum in the back half of 2018.

As incoming data continues to point to little reprieve in a growth rebound, the RBA looks increasingly at odds with economic reality.

February NAB business survey:

Business confidence 2, -2 Pts
Trading 8, -2 Pts
Profitability 1, -4 Pts
Employment 5, unchanged
Capacity utilisation rate 80.9%
Business conditions
Source: NAB Business Survey
Business conditions
The RBA has pinned the future path of its monetary policy to strength in the labour market, which has so far remained a bright spot in the domestic economy. The RBA is banking on employment strengthening and wage growth coming through to offset the negative wealth effect and consequent hit to consumption due to falling property prices. In our view, the RBA is too optimistic and will need to cut the cash rate, but until there is evidence of labour market strength tapering off, the RBA will be less inclined to cut rates. 

Today’s business survey highlights that the slide in the property market and slowdown in economic growth, both globally and locally, are spilling over into the business sector. This is of particular importance as the strength in the labour market will be crucial in determining the RBA’s next policy move. Leading indicators within NAB’s survey today highlight that business conditions are likely to remain weak; if growth continues to decline, businesses will cut hiring and unemployment will rise, and then we can expect a further easing bias to be adopted by the RBA.

Employment will not continue to hold up as confidence is eroded and growth continues to lose momentum. Currently, the labour market remains resilient, but unemployment is a lagging indicator, so the data only give us a backwards-facing view on the health of the labour market.  

Within today’s survey, capacity utilisation continued to decline and is now below average. This is another leading indicator pointing to slowing in the labour market and a potential rise in unemployment ahead.
Capacity utilisation
ANZ job advertisements are another leading indicator (unlike unemployment, which is lagging) that points to a potential drop in hiring ahead, indicating unemployment will rise. This is consistent with our view that economic growth is deteriorating and will continue to do so throughout the year.
Business conditions
Along with these leading indicators, the continued slump in building approvals –now down 28.6% y/y – highlights a marked decrease in residential construction to come, pointing to potential weakness in employment in residential construction. As the housing market slide continues, it is only a matter of time before jobs are affected, particularly in Sydney and Melbourne where the steepest declines have been felt. We expect the unemployment rate to creep higher as economic activity slows.

Given that strength in the labour market is crucial in determining the RBA’s next policy move, and that many leading indicators suggest labour market strength will soon drop off and unemployment will rise, we can expect a further easing bias to be adopted by the RBA. 
We don’t necessarily need to see unemployment move up in a big way, given that it has remained the RBA’s pillar of strength in the domestic economy. If this were to crumble, there is probably a relatively low threshold for moving to a cut. As previously noted, we believe eventuality will be inevitable, and the RBA will need to act by moving to cut the cash rate.
Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.