While Australian business conditions and confidence softened noticeably in November, the indicators on employment suggest growth looks set to chug along nicely in the months ahead.
And, perhaps more importantly, given the implications for inflation and interest rates, there are also signs that wage pressures are building.
“Solid employment conditions in the NAB Survey suggest the labour market should continue to strengthen in the near-term. The employment index remained at +7 index points, which is well above the long-run average for the series,” the NAB said following the release of the November report.
“This outcome points to an annual job creation rate of around 240,000 which is sufficient to see the unemployment rate push lower.”
While another solid result which, along with a variety of other leading indicators, points to continued labour market strength, the NAB said the internals of the report pointed to a mixed picture on hiring levels across individual industries.
“A majority of industries actually saw a deterioration in the employment index for November, but that was offset by strength in finance, property and business services, and to less an extent mining,” it said.
“The biggest deterioration in the month came from manufacturing, followed by transport.”
From a longer-term perspective, the NAB said construction now has the best employment conditions, followed by mining, which it says “has improved considerably in the survey since the start of this year”. However, the bank added that “recent falls might suggest a loss of momentum as major mining investments are completed”.
There was better news on the under-pressure retail sector — the second-largest employer in the country behind healthcare — with the trend in employment conditions now “mildly positive”, according to the NAB.
After a tough September quarter, this provides further hope for the sector following a positive retail sales report for October.
The chart below shows employment conditions by individual sector in trend terms.
Along with the solid headline employment figure, the NAB said there were further signs that tightening labour market conditions are helping to build wage pressures for workers.
“Labour costs growth — a wage bill measure — rebounded somewhat in November, to a quarterly rate of 1.2%,” the NAB said.
“Labour cost inflation has been relatively subdued, but trending higher, and suggests higher wage inflation than the Australian Bureau of Statistics’ (ABS) wage price index (ABS).
This chart shows the relationship between the NAB wages measure compared to the annual hourly wage growth in the official ABS measure.
While the NAB measure tends to act as a lead indicator to the official data, a yawning gap has opened up in recent years with the NAB measure trending higher while the WPI is now only showing tentative signs of bottoming.
The NAB says this could partly reflect strong employment growth being partially offset by continued weakness in wages.
Following the release of today’s survey, all attention will now turn to the release of Australia’s official jobs report for November on Thursday, December 14.
Along with monthly employment and unemployment figures, this report will also contain quarterly readings on underemployment and underutilisation, two measures that many believe will determine when, and by how much, wage pressures finally start to build.