Confusion aside, Australian job market still soft

Australia loses jobs in September
Australia loses jobs in September

The change in how Australia's government calculated unemployment figures in the last three months is surprising and confusing, but doesn't change soft labor market conditions, analysts say.

In an unusual step, the Australia Bureau of Statistics (ABS) on Wednesday announced that it will change the way it breaks down employment numbers for July, August and September, by excluding seasonality factors.

As a result, the September employment figures released on Thursday showed the economy losing 29,700 jobs, much worse than a Reuters forecast for the addition of 20,000 jobs. But had the ABS assumed seasonality, the reading would be even more dismal, reflecting a loss of 172,000 jobs.

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The ABS also downwardly revised August employment to a rise of 32,100, from a stunning gain of 121,000. The initial August reading was so far above expectations it left many analysts scratching their heads.

Career fair in Melbourne, Australia
Carla Gottgens | Bloomberg | Getty Images

Meanwhile, jobless rate for September came in at 6.1 percent, in line with expectations. But July's shock spike in unemployment to 6.4 percent was also revised and is now shown as 6.0 percent.

Analysts say there are two takeaways from the change: investors must watch for clarity on how ABS intends to crunch numbers going forward; the country's employment remains broadly sluggish.

"The ABS's decision to ignore seasonality through the September quarter is highly unusual," Goldman analysts said in a note released on Thursday. "It is quite possible that the problems with the survey are more fundamental than seasonal issues, and we await the outcome of the review, which the ABS has indicated is in the pipeline."

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"While significant questions over the quality of the ABS data remain, at a minimum we can say that there is no longer any evidence of the solid momentum in employment growth, which appeared to be building this time last month," Goldman added.

According to Glenn Levine, senior economist at Moody's Analytics, while it's surprising to see the ABS admit there might be something wrong with the numbers, investors shouldn't be unduly worried.

"I think [September's data] broadly aligns with what we think about the Australian economy. It's expanding but not at a rate that is strong enough to create the number of jobs necessary each month to keep unemployment low each month or steady," he said.

"[While] we're seeing the jobless rate drift up, there was never any reason to expect that go smoothly and we are now seeing the bumps and the economy could slow in the second half of the year. I think it'll be a while before we go back to full employment," Levine added.

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As to what the data mean for monetary policy, analysts aren't recalibrating their forecasts for now. Goldman points to recent comments by Reserve Bank of Australia (RBA) governor Glenn Stevens on the unusual volatility of the jobs data, suggesting that it may be some months before clearer trends emerge.

"In the interim, the [job] revisions will - if anything - reinforce the RBA's view that the unemployment rate will remain high," and keep rates on hold in the near term, Goldman added. The bank expects no changes in rates, which are at a record low of 2.5 percent, until fourth quarter of 2015.