- Australia’s December report was seen as solid by economists.
- Many suspect the decline in unemployment will begin to reverse later in the year.
- None believe it has near-term implications for the RBA.
Australia’s jobs market finished another good year on a strong note in December.
At 5%, unemployment fell to the lowest level since June 2011, driven by a 21,600 increase in employment.
The total number of unemployed workers also fell as jobs growth outpaced a smaller increase in the size of the workforce.
Broader measures of labour market underutilisation also declined, reversing gains seen previously in November. While they still remain well above the levels that have heralded an acceleration in wage pressures in the past, they did move in the right direction.
And while full-time employment fell for a second consecutive month, those declines followed a strong run earlier in the year.
All things being equal, it was another solid result, fitting with the view of the RBA that stronger labour market conditions will lead to a gradual decline in unemployment and faster wage and inflationary pressures ahead.
But is it enough to persuade financial markets and an increasing number of economists that the RBA won’t cut interest rates later this year?
Here’s a selection of economists views on the December report, along with what they expect lies ahead.
Callam Pickering, Indeed
Solid employment growth and a lower unemployment rate appear increasingly at odds with other economic indicators, whether that be house prices or inflation or even economic growth more generally. That is unlikely to persist for much longer — either employment growth will slow or the economy will bounce back.
The market though has certainly placed its bets, pricing in a greater than 50% chance of a cash rate cut by the end of the year. The RBA certainly has a lot to think about.
Dig a little deeper though and it begins to make a little more sense. The underutilisation rate, the best measure of labour market slack in Australia, remains excessively high at 13.4 %. High levels of slack continue to weigh on wage growth, despite a decline in the unemployment rate, which in turn is helping to contain inflation. Add falling property prices into the mix and it suddenly becomes clear why the market has become a little skittish.
Softer economic conditions, including falling property prices, suggest that employment growth will ease somewhat in 2019. It will certainly be difficult to replicate the 2018 outcomes. And if that is the case then stronger wage growth will remain elusive.
Justin Smirk, Westpac
Employment ended 2018 with a sound run. In the year to December total employment grew 268,600, or 2.2%, which matches the six month annualised pace of 2.2%. While it is true that the momentum in the Australian labour market eased through 2018 — annual growth peaked at 3.6%yr in January — it can still be described as sound.
For 2019 we are looking for a pause in the pace in employment growth due to the economic uncertainties surrounding the Federal Election at the same time as we expect to see a moderation in momentum in New South Wales and Victoria on the back of a moderation in housing activity. We are expecting this to slow employment growth to below the pace of growth in the labour force lifting the unemployment rate to 5.3% around mid-2019.
Gareth Aird, Commonwealth Bank
The final employment report of 2018 was a solid one. It is true that there has been a softer tone to the domestic economic data of late. But the key labour market data remains sound. Firms are still hiring at a decent pace and the unemployment rate continues to trend lower.
A healthy report today that leaves us comfortable with our view that the RBA is not taking the cash rate lower. Current market implies a 66% chance that the RBA eases policy over the next year. We believe that overstates the probability of a cut. The near term focus turns to the Q4 CPI, due Wednesday 30 January.
Ben Jarman, JP Morgan
We still expect the unemployment rate to go up a little from here (to 5.3%-5.4%) over time as domestic demand is fading and the leading indicators such as vacancies and business surveys have levelled off. But today’s data convey some welcome stability in the backdrop for the household sector given that the housing and retail news-flow was weak over year-end.
For the RBA this further reduces the likelihood of a sudden re-think in the policy guidance at the first meeting for the year in February.
Marcel Thieliant, Capital Economics
The decent rise in employment in December shows that the housing downturn isn’t having a major impact on the labour market yet. But the labour market is clearly losing steam. Annual jobs growth has slowed from 3.5% at the start of last year to just 2.2% in December. And it will probably weaken further as the housing downturn weighs on consumption and dwellings investment.
There are already some signs that this is happening. The employment components of the PMIs fell to a two-year low in December. What’s more, ANZ job advertisements have fallen steadily since early last year. Our view is that employment growth will slow from 2.8% last year to 1.7% this year as domestic demand slows. That means that the unemployment rate may climb back to 5.3% by year-end.