The latest set of data from the Australian Bureau of Statistics show that the trend unemployment rate is on the up. Should investors be worried?
The data, released yesterday, show the trend unemployment rate climbed to 5.3% in July, which is up from 5.2% in June and 5% only a few months ago.
According to ABS Chief Economist Bruce Hockman, the trend unemployment rate has increased due to the trend participation rate increasing.
In July, trend monthly employment increased by roughly 24,600 people, with 15,000 of those in full-time work and 9,600 people in part-time work.
In seasonally-adjusted terms, the number of people employed jumped by 41,100 in July.
Over the last 12 months, trend employment has actually increased by 2.7% despite the higher trend unemployment rate. This growth is above the long-term average of 2%.
The underemployment rate remained steady at 8.4% in July.
Can Interest Rates Go To 0?
This comes at a time where we’ve seen interest rates being cut. The following snippet comes from Episode 24 of the The Australian Investors Podcast, where macro expert Vimal Gor gives his take on the future of RBA interest rates.
What Does This Mean For ASX Investors?
The unemployment rate and wage growth are two important factors to keep track of for ASX investors.
Employment and income levels affect a consumer’s ability to borrow and repay loans, which can impact banks like Commonwealth Bank of Australia (ASX: CBA) and Australian and New Zealand Banking Group (ASX: ANZ).
It also has an impact on a consumer’s ability and willingness to pay for discretionary items. This means that companies in the consumer discretionary sector such as Super Retail Group Ltd (ASX: SUL), Webjet Limited (ASX: WEB) and JB Hi-Fi Limited (ASX: JBH) could be affected.
In a broader sense, a higher unemployment rate leads to less tax for the Australian government and higher unemployment benefits to be paid. A lower unemployment rate can generate additional GDP and stimulate the economy by encouraging higher spending.
What To Look For
I’m not saying that a rate of 5.3% screams “head for the exits”, but the unemployment rate is a number to keep track of, along with wage growth and retail sales, because of the effect it can have on ASX-listed companies and the economy as a whole.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.