• Australian employment fell unexpectedly in July, but almost everyone thinks it will increase again in August.
• TD Securities are the exception as only forecaster polled by Bloomberg to predict back-to-back declines.
• Rather than being a sign of deteriorating labour market conditions, it says the decline will reflect seasonality, and will likely be temporary.

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Australian employment fell unexpectedly in July, according to data from the ABS.

At 3,900 after seasonal adjustments, it was the first decline recorded since February, joining a lengthening list of leading labour market indicators that point to a slowdown in hiring in the months ahead.

However, while few believe that employment growth will return to the lofty levels seen throughout much of 2017, not many are expecting the performance seen in July to be repeated again in August.

Of the 25 economists polled by Bloomberg, the median forecast looks for an increase in employment of 18,000, enough to keep unemployment steady at 5.3% without any change in participation levels.

But not everyone shares that consensus view.

Indeed, of the 25 individual forecasts offered, one, in particular, stood out: the 10,000 decrease expected by TD Securities, the only forecaster game enough to call for a back-to-back drop in employment.

And not only that, it expects the decline will be led by full-time employment.

So why, compared to everyone else who believes employment growth will rebound, does TD hold such pessimistic view?

The answer can be summed up in just one word: “seasonality”.

“We expect a brief seasonal 10,000 dip in August, not the beginning of a deteriorating labour market,” says Annette Beacher and Mark McCormick, Strategists at TD.

“August is a seasonally weak month for employment, with an average of 95,000 losses from 2009 to 2013 in original, non-seasonally adjusted terms.”

While there was an anomaly, of sorts, back in 2014 when the original data indicated a lift in employment of 31,000 in August — coinciding with a period when the ABS was having difficulties with its seasonal adjustment process — Beacher and McCormick say the pattern of seasonal weakness in August has since returned, providing them confidence for their non-consensus employment call.

“After the anomaly of 2014, enough time has passed to witness normal seasonality since, just with less magnitude. Hence, we look for a 40,000 decline in raw terms, or a small fall of 10,000 after seasonal adjustments,” they say.

TD forecasts that full-time losses will drive the decline, tipping a fall of 20,000 after solid growth in recent months, continuing the frequent pattern where gains or losses in full-time employment are often reversed in the following month.

Combined with an expectation that laboour force participation will hold steady at 65.6%, it also expects the seasonally adjusted unemployment rate will tick up to 5.4% from its current level of 5.3%.

However, while a gloomy forecast, TD says the decline in employment — if it arrives — is likely to be temporary dip.

It also thinks it will do little to deter the Reserve Bank of Australia’s (RBA) optimism towards the outlook for labour market conditions in the period ahead.

“The RBA is unlikely to worry about a pickup in the unemployment rate from 5.3% to 5.4% as we expect,” says Beacher and McCormick.

“There has been a gradual decline in spare capacity, and monthly data rarely moves in a straight line towards target.”

Based on the latest set of forecasts offered by the RBA back in early August, it saw Australia’s unemployment rate falling to 5.25% by the end of next year. Even if the rate increases on this occasion as TD expects, at just 15 basis points, it would still be very close to that forecast level, and well below the 6%-plus rates seen not all that long ago.

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