Australian unemployment ticks up

RODGER BOSCH/AFP/Getty ImagesAustralian employment growth has slowed recently.
  • Australia created 22,600 jobs last month, above the 20,000 increase expected.
  • However, despite the increase, a greater number Australians joined the workforce, seeing unemployment increase by 10,600.
  • Over the year, employment rose by 332,100, slower than the 341,900 increase in the size of the labour force.
  • At 5.6%, unemployment has moved further away from the levels where wage growth is expected to accelerate.

Australia’s unemployment rose in April as the size of the labour force increased faster than employment.

As such, with the supply of workers outstripping demand from employers, the likelihood of an acceleration in wage growth arriving anytime soon has diminished further.

According to the Australian Bureau of Statistics (ABS), employment grew by 22,600 in seasonally adjusted terms, coming in marginally ahead of forecasts for an increase of 20,000.

Full-time employment increased 32,700 to 8,543,400, reversing a similar decline recorded a month earlier. Part-time employment fell by 10,000 to 3,957,700, again the complete opposite to what was seen in March.

With full-time employment lifting strongly, total hours worked increased by a hefty 19.4 million hours, or 1.11%, to 1.764 billion hours.

The largest increase in employment was seen in New South Wales, increasing by 27,100. That was followed by Western Australia, up 8,300, and South Australia at 2,700 persons.

In contrast, the largest declines were reported in Victoria and Queensland where employment fell by 10,000 and 8,200 respectively.

Total employment stood at 12,501,000, representing 61.9% of Australia’s total working age population. The latter was unchanged from the level reported a month earlier.

Slightly offsetting the April jobs beat, employment in March, originally reported as a gain of 4,900, was revised down to show a decline of 700. Combined with a 7,400 decline in February, it meant Australia recorded its first back-to-back drop in employment growth since September 2016.

Over the year, full-time employment rose by 265,200, outpacing a 66,900 increase in part-time workers. Combined, total employment increased by a 332,100 from April 2017.

Despite the solid increase in employment in April, the unemployment rate rose to 5.6%, up from 5.5% in March, and 5.4% at the end of last year.

As seen in the chart above, after steady progress in recent years, unemployment has now started to trend higher, moving further away from the 5% level, or below, that many believe it will need to fall to before wage pressures begin to build.

For policymakers banking on a lift in wage growth to deliver their policy mandates, this is unwelcome news, especially if it continues.

Total unemployment increased by 10,600 to 741,000, the highest level in over a year, as the size of Australia’s labour force — capturing those already employed or who are actively looking for work — increase by a massive 33,200 people.

Reflecting that boost, the labour force participation rate rose 0.1 percentage point to 65.6%, above the 65.5% level expected.

The continued growth in participation reflects not only that stronger job market conditions are encouraging people not previously in the labour force to look for work, but also strong population growth, predominantly from immigration, as well as more Australians working well past retirement.

Indeed, while employment increased by 332,100 over the year, the labour force grew even faster, lifting by 341,900 over the same period.

That explains why unemployment, at 741,000, is now at the highest level since March last year despite strong employment growth.

By state and territory, unemployment rose in Queensland and South Australia but fell in Western Australia and Tasmania. Despite the divergence in hiring seen during the month, unemployment in New South Wales and Victoria — Australia’s most populous states — held steady at 5% and 5.3% respectively.

ABS

While more Australians than ever before are currently in employment, something that is undoubtedly good news, particularly given the growth in the size of the labour force, the continued increase in unemployment reinforces the view that both wage and inflationary pressures are likely to remain subdued for some time yet.

“Higher participation, combined with a slowdown in employment growth, has pushed the unemployment rate higher,” says Callam Pickering, APAC Economist at Indeed.

“It is a timely reminder that labour market slack is still high in Australia. We still have a long way to go before we can safely say that our labour market and economy is in a healthy place.

“Yesterday’s awful wage data only reinforces this, with real wages barely changed over the past five years.”

Paul Dales, Chief Australia and New Zealand Economist at Capital Economics, thinks “awful” wage growth is likely to persist until unemployment falls well below 5%.

“The 33,200 leap in the labour force in April meant that the unemployment rate edged up from 5.5% in March to a nine-month high of 5.6%,” he says.

“The unemployment rate has now remained largely unchanged for a year and is some way above the RBA’s estimates of the natural rate of around 5.0% and well above our own estimate of closer to 4.0%.

“In other words, there is still plenty of slack in the labour market.

Dales says high unemployment, coupled with structural forces, will prevent wage growth from rising much above its current rate of 2.1%.

And given the linkages between wage growth and inflationary pressures, Pickering believes the RBA may not be in a position to lift official interest rates until 2020.

“Taken together with yesterday’s wage release, the latest round of labour market data is likely to delay any rate hike,” he says. “Increasingly, it appears as though we won’t see a rate hike before 2020.”

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