Australian unemployment may start to increase as online job ads slump again

• Online job advertisements in Australia continued to fall in March, a scenario that has typically led to slower hiring and higher unemployment in the past.

• At 3.8%, the annual decline in online advertisements was the steepest since December 2013.

• Fewer advertisements were seen across most states and territories, and in all occupational groupings, in March.

• With Australian inflation very weak and given the upside risks for unemployment, financial markets see the RBA cutting official interest rates within the next few months.

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Online job advertisements in Australia continued to fall in March, a scenario that has typically led to slower hiring and higher unemployment in the past.

According to the Australian government’s Internet Vacancy Index (IVI), online job vacancies fell by a further 1.5% in trend terms, leaving total openings down 3.8% from a year earlier.

Job ads have now fallen in nine of the past 12 months, including in the first three months of 2019. The annual percentage decline is also the largest since December 2013.

As the chart below suggests, when online postings fall, unemployment tends to rise, and vice versus.

Image: Department of Jobs and Small Business

The IVI is based on a count of online job advertisements newly lodged on SEEK, CareerOne and Australian JobSearch during a particular month.

The government says it does not reflect the total number of job openings in Australia as it does not include jobs advertised through other online job boards, employer websites, word of mouth, in newspapers, and advertisements in shop windows. It also does not specify whether vacancies are for full-time, part-time or casual workers.

Over the month, online job postings fell in all states and territories with the exception of the ACT where they rose by 0.8%.

Of note, sharp declines of 1.5% and 1.8% respectively were recorded in New South Wales and Victoria, not only the states where almost half of Australians live but also where unemployment is currently the lowest, according to data released by the ABS.

Image: Department of Jobs and Small Business

Similar trends were also evident by occupational grouping with advertisements falling in all categories from February, led by declines of 1.8% and 1.6% respectively for labourers and sales workers, two of Australia's largest employing sectors behind healthcare.

Along with a 14.9% decline in postings for machinery operators and drivers, those categories also recorded a double-digit percentage decline in advertisements over the year.

Image: Department of Jobs and Small Business

Though total vacancies still remain at relatively elevated levels, the recent weakness is a concern, pointing to the likelihood that hiring will begin to slow in the months ahead, a scenario that may place upward pressure on unemployment should participation rates in the workforce remain at current levels.

In April, the RBA Board struck a less-upbeat view on the outlook for hiring compared to recent months, noting that forward-looking indicators had been "mixed in recent months".

"Job advertisements had eased, but job vacancies reported by employers through the ABS survey had increased further as a share of the labour force in February," it said.

Given the recent weakness in advertisements, and the relationship it has had with unemployment in the past, that renewed caution appears warranted, especially with growth in total job vacancies also slowing in early 2019.

Earlier this month, the RBA noted a "scenario where inflation did not move any higher and unemployment trended up" was one where a "decrease in the cash rate would likely be appropriate".

Given persistent weakness in Australian inflationary pressures, and with economic growth slowing sharply in the second half of last year, the softening in job advertisements provides another potential trigger for the RBA to cut official interest rates again given the upside risks for unemployment.

Financial markets don't think it will take the RBA long to reduce Australia's cash rate again, putting the odds of a 25 basis point reduction next month at around 60%. Further out, a full 25 basis point rate cut is priced in by July, with a second cut also fully priced by February next year.