NAB sees 20,000 jobs gain, unemployment steady at 4.6% in Australia

With NAB, Westpac and consensus all pencilling in 20,000, and three major banks expecting 4.6% for the jobless rate, the main risk of a surprise lies with the unemployment figure. Should it slip to 4.5%, that would strengthen the argument for further RBA tightening and could lend support to the Australian dollar and short-dated yields. A move up to 4.7% would have the opposite effect, bolstering the belief that the four rate hikes already delivered are sufficient. NAB's assessment that the slowdown is driven by supply also has implications for rates: higher labour force participation reduces wage pressures without indicating a drop in hiring, giving the RBA less reason to express concern about growth.

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NAB believes the August rise in unemployment was partly a statistical anomaly, but not enough of one to bring the rate back down to 4.5% this month.

Summary:

• Australia's September labour force data are scheduled for release at 11.30am Sydney time Thursday (0030 GMT Thursday, 8.30pm US Eastern Wednesday)
• NAB projects employment growth of 20,000, in line with Westpac and consensus, while CBA is lower at around 10,000
• NAB expects unemployment to remain at 4.6%, with some possibility of a lower figure
• That would be marginally above the RBA's fourth-quarter forecast of 4.5%, which NAB says would not significantly alter the central bank's stance unless unemployment continues to surprise on the upside
• NAB indicated that August's jump was partly due to residual seasonality and ABS methodology changes, increasing the chance of some correction
• A low-unemployment survey group rotating out, plus rounding, prevent NAB from making 4.5% its base case

National Australia Bank is predicting that the September labour force report will show employment increasing by 20,000, with the unemployment rate steady at 4.6%, though there is some risk of a lower figure. The data comes out at 11.30am Sydney time on Thursday, corresponding to 0030 GMT and 8.30pm US Eastern time on Wednesday.

NAB's projection is the same as Westpac's and the market consensus. CBA is looking for a more modest gain of approximately 10,000. All three banks expect unemployment to be unchanged.

A 4.6% reading would put the jobless rate slightly above the 4.5% fourth-quarter estimate in the Reserve Bank of Australia's August Statement on Monetary Policy, its quarterly economic outlook. NAB does not believe that this gap would materially alter the RBA's view of the labour market, unless unemployment keeps surprising to the upside through the rest of the year. The bank noted that much of the recent cooling comes from more people joining the workforce rather than weaker hiring, and that labour demand indicators remain strong.

NAB said the August increase in unemployment seemed partly caused by residual seasonality and partly by methodology changes. Residual seasonality refers to seasonal patterns that the adjustment process did not fully remove. The methodology changes were implemented under the Australian Bureau of Statistics' Labour Force Modernisation project. Together, these factors raise the likelihood of some payback in September.

Two reasons keep NAB from adopting 4.5% as its base case. First, the eighth of the survey sample rotating out this month has an unusually low unemployment rate, so its exit tends to push the measured rate higher. Second, August's rate was around 4.65% before rounding. It could therefore drop by nearly a full tenth of a percentage point and still be reported as 4.6%.

The outcome directly influences the debate over whether the RBA, which has raised its cash rate four times to 4.60%, needs to act again. According to NAB's analysis, a steady 4.6% would not be enough to change that assessment. A series of upside surprises in unemployment through to year-end would be.