Here's why Australia's latest jobs report could deliver another welcome surprise

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Recent Australian jobs data has been nothing short of stellar.

Employment growth has been strong, and almost entirely full-time in nature, seeing unemployment levels edge lower.

Throw in a raft of strong leading labour market indicators such as job ads, skilled vacancies and a variety of business and consumer-related reports, and it looks like the trend seen so far in 2017 will continue in the months ahead.

It’s all looking good after an iffy 2016, helping to slowly build confidence that the Australian economy is strengthening.

To Annette Beacher, chief Asia-Pacific macro strategist at TD Securities, Australia’s Thursday’s July jobs report will do little to derail that view.

She’s looking for another mammoth increase in employment of 35,000, leaving her at the top of all market forecasts in the latest Bloomberg survey.

“We expect a fifth consecutive strong employment report for two main reasons: leading indicators such as ANZ job ads, skilled job vacancies and the NAB employment index all point to decent annual employment growth and in-house seasonal analysis points to a flat raw employment outcome, consistent with a large boost in the seasonally adjusted print of at least 35,000,” she says.

This chart from TD helps explain the tailwind that may be provided by seasonality effects.

Source: TD Securities

It compares monthly employment growth in Australia this year in seasonally adjusted terms to that reported in the past two calendar years.

As the chart shows, July has recently delivered strong employment growth, leaving it just behind February and November in terms of total cumulative job growth over the past two years.

While this doesn’t automatically imply that the same scenario will arrive on this occasion — employment growth has been far stronger this year than in 2015 and 2016, suggesting that there’s a risk of some “payback” in Thursday’s report — there’s little doubt that the leading labour market indicators have only continued strengthen in recent months.

That alone suggests that job growth is likely to remain firm even before seasonality effects are taken into consideration.

Should Beacher be on the money with her bullish July call, it will only help to build confidence that strengthening labour market conditions will eventually lead to an acceleration in wage pressures, and potentially a lift in official interest rates.

“The RBA is still focused on spare capacity in the labour market, keeping wages low,” says Beacher. “However, if full-time employment and hours worked continue to expand, this spare capacity could be absorbed rather quickly, and wages could rise faster than the RBA currently expects.”

Beacher isn’t expecting that a rebound in wage pressures will be seen in tomorrow’s June quarter wage price index (WPI) report, but she thinks that that will all change when the September quarter WPI is released in three months time.

“We expect cyclical wage growth to pick up a little further, while services-based wages growth is likely to remain unchanged, before jumping higher in the third quarter along with the pop in minimum wages from 1 July,” she says.

Economists expect the WPI to increase 0.5% in the June quarter, leaving the year-on-year increase unchanged at 1.9%.

For Thursday’s Australian jobs report, the median forecast is centred around an increase in employment of 20,000, with individual forecasts ranging from a gain of anywhere between 8,000 to 35,000.

Both the unemployment and participation rates are tipped to remain steady at 5.6% and 65.0% respectively.

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