Fascinating analysis from RBS:
"An odd fall in NSW employment drove the result. While flood-related job losses in Queensland earlier in the year distorted the employment numbers, today's numbers look to be entirely skewed by an odd result for NSW. Employment there fell 44K which is the second largest fall on record (the largest being in November 1992 in the midst of one of Australia's worst recessions!). We suspect that this is a statistical quirk and not a genuine reflection of weakness in the labour market. That is, we think that this fall indicates sampling error, where the volatility in employment reflects problems in rotating new people into the survey. This is supported by the ABS "gross flows" data (that effectively exclude those new people who were rotated into this month's survey), which we calculate show national employment actually grew around 20K, while NSW employment was basically flat. We expect that both NSW and national employment growth should revert to something closer to trend next month.
On that front, forward indicators continue to point to further growth in employment. Although the ANZ measure of job advertisements has slowed, it is still growing at an annualised pace of around 20%, which points to further strength in employment. The ACCI/WBC manufacturing survey shows similar strength, and the NAB business survey measure of hiring intentions is again pointing to solid gains after a temporary softening early this year. Moreover, the rebuilding effort in Queensland post the floods and cyclone, expected to be worth more than $5b, should add to jobs growth over the next year or so.
For the RBA, we still favour a June hike, albeit with reduced odds. We suspect that the RBA's analysis of the employment figures would be much the same as ours, with the Bank more likely to focus on the unemployment rate, which is now below the key 5% level and set to head lower. (For those of you interested in the finer detail, the unemployment rate was actually 4.85% to two decimal places in April). For a better idea into the Board's thinking, we will need to wait to see the minutes of last week's Board meeting due out next Tuesday, which we expect will should that the Board discussed the possibility of a hike this month. As a result, we continue to slimly favour a 25bp hike in June."
