- Australia added over 400,000 jobs in 2017, the largest increase over a calendar year on record.
- The employment index in the NAB’s monthly business survey jumped to the highest level on record in February, suggesting that strong hiring levels will likely continue.
- With strong levels of population growth, elevated hiring levels will need to continue to help lower unemployment and lift wage pressures.
Australian employment growth roared back to life in 2017, adding over 400,000 jobs, the most over a calendar year on record.
After such a stellar result, few expect hiring of that magnitude to arrive in the year ahead, even with the prospects for firmer economic growth.
However, don’t write off the Australian jobs juggernaut just yet.
If the companies interviewed by the National Australia Bank (NAB) as part of its monthly business survey are anything to go by, employment growth may be about to go into overdrive.
In its latest report for February, the NAB’s employment index soared to +16 points from +6 a month earlier, leaving it at the highest level ever recorded in the two-decade history of the survey.
While he admits the employment index has overstated total employment growth in Australia over the last year, Alan Oster, Chief Economist at the NAB, says the latest reading suggests hiring levels will likely remain elevated in the months ahead.
“If the surge in the employment index is maintained you would expect to see jobs growth of around 27,000 per month,” he says.
“While this is below the average monthly growth rate in jobs recorded by the ABS over the last twelve months, the bottom line is that strong jobs growth will not be ending any time soon, which is good news for getting the unemployment rate down.
“This will sustain strong jobs growth, reduce unemployment, and put gradual upwards pressure on private sector wages.”
And why wouldn’t firms be looking to hire in early 2018?
As Oster points out, business conditions are currently the best they’ve ever been, according to survey respondents, with trading and profitability both at extremely elevated levels.
“The record level for business conditions indicates that business activity in Australia is robust,” he says. “Moreover, the strength in conditions is broad based across industry groups.”
Daniel Gradwell, Senior Economist at ANZ Bank, says improved corporate profitability is now becoming a clear tailwind for the labour market.
“The improvement in profitability over the past 12 months is particularly impressive and suggests that employment growth should be able to maintain its rapid pace for a bit longer yet,” he says.
“Businesses appear to be in a purple patch at present, and forward-looking indicators suggest this will continue to translate into a strong labour market.”
Others, however, were more cautious about the February employment reading.
“In the breakdown, the strength in the employment index appears to owe almost entirely to stronger gains in the mining sector, and concentrated in Western Australia,” said Henry St John, Economist at JP Morgan.
“Capacity utilisation, which offers a better signal on the trajectory of the unemployment rate, edged lower to 82.5% from 82.7%.”
Markets will get to decide themselves on the current strength of the labour market, and whether the recent hiring spree of 2017 will continue in the months ahead, with the ABS set to release Australia’s official jobs report for February on Thursday, March 22.
This report will not only look at changes in employment and unemployment over the month, but also movements in labour market underutilisation, a key factor in determining the outlook for wage growth.
It’s been sitting near record highs in recent quarters, contributing to weak wage outcomes seen in the post-GFC era in Australia.
Many will be hoping that the NAB is right that progress has been made on lowering underutilisation in recent months, especially those workers in the private sector whose wages are barely keeping up with inflation.