Australia’s April jobs report had something for everyone.
On one hand, employment grew by more than 22,000, snapping two months of declines, with full-time positions rising strongly. And hours worked also jumped by over 1%.
However, even with the lift in employment, the size of Australia’s labour force grew even faster, seeing both total unemployment and the unemployment rate increase.
At 5.6%, unemployment remains well above the 5% level where wage pressures are expected to build.
With so many people entering the labour market, in part due to population growth but also due to more Australians seeking work or delaying their retirement, it’s keeping unemployment elevated, even with strong employment growth.
As we said, it was a mixed report.
There’s plenty of jobs being created, just not enough to lower unemployment.
Now that they’ve had time to look through the report, it’s time to see what economists have made of the report. Was it good, bad, or somewhere in between?
Here are the answers we’ve received so far.
Diana Mousina, AMP Capital
Exceptional employment growth over the past year has not been enough to generate a lift in wages from very low levels. One of the main reasons for this is because of spare capacity in the labour market. Underutilisation — total unemployment and underemployment — is close to 14% of the labour force in Australia, compared to 8% in the US, so there needs to be more progress on bringing down spare capacity.
We expect that employment growth will still be good over the next 6 months — around 2.5% on an annual basis — but down from recent highs. So, a strong labour market will bring down the unemployment rate towards 5-5.25% slowly and will keep wages growth from declining further, but it is difficult to see a substantial rise in wage outcomes, particularly with indications from companies that large wage rises are unlikely in the near-term.
In this environment, the Reserve Bank of Australia will tread carefully and is unlikely to be in a rush to lift interest rates. This patience from the Reserve Bank has been clear in recent communication. There are pockets of strength in Australia — business confidence is still positive, non-mining investment growth is rising and infrastructure spending is high. But, the low inflation environment, lots of risks around the housing market and a still elevated currency will limit growth in the economy this year and keep the Reserve Bank cautious.
We don’t expect to see a rate rise until 2020.
Felicity Emmett, ANZ
Employment rose a solid 22,000 in April although downward revisions to March and February and a tick back up in the unemployment rate took the gloss off the report. Employment growth has clearly slowed over the past few months, after a very strong run through 2017.
Leading labour market indicators have become more mixed recently. ANZ Job Ads growth has slowed, but business conditions, including hiring intentions and profitability, remain particularly buoyant.
Overall, our ANZ Labour Market Indicator continues to suggest that further tightening of the labour market is likely over the next few months. We will, however, be watching these indicators closely in coming weeks, given the importance of employment to household income growth and the overall economic outlook.
Paul Dales, Capital Economics
While the exceptionally strong rates of jobs growth throughout 2017 are unlikely to return, leading labour market indicators point to a decent enough rate this year. Even so, the excess slack in the market and structural forces will prevent wage growth from rising much above its current rate of 2.1%. In fact, we expect the wage growth will remain below 2.5% throughout this year and next.
Ivan Colhoun, NAB
The big debate is why the unemployment rate is not falling, given usually reliable indicators suggest it should be such as SEEK job ads, NAB employment survey, and consumer unemployment expectations. Yes participation is increasing, but that isn’t usually enough to stop the unemployment rate from declining.
It is something of a mystery. We suspect the unemployment part of the survey just isn’t quite picking up the broad trend for unemployment at present. ABS unemployment data has printed counter trend before — both when unemployment is rising and falling — before ultimately reversing. Suspect that’s probably happening again.
However, the RBA will interpret the data it sees printing and will conclude that spare capacity remains in the labour market. This increases the risk that the RBA remains on hold for longer than NAB expects.
Tom Kennedy, JP Morgan
Australia’s labour force survey for April was mixed, though on balance the main details of the release came in softer than anticipated. Combined with yesterday’s Q1 wage data, we view today’s release as confirmation that slack remains elevated in the labour market.
As RBA Deputy Governor Guy Debelle articulated in his speech earlier in the week, the most useful aspect of the employment data is the unemployment rate, given this measure abstracts from the usually correlated short-run shocks in supply and demand. As such, we are inclined to view today’s print as yet another indication that the economy is not yet running close to capacity.
For the RBA, the most recent Statement on Monetary Policy (SoMP) saw officials revise their 2018 unemployment rate forecast 25 basis points higher to 5.5%. Today’s headline jobless rate number is therefore unlikely to create too much anxiety for the Bank for now, though it does underscore the view that domestic economic momentum remains fragile and a sustained increase in core inflation is a long-run prospect.
Callam Pickering, Indeed
Higher participation, combined with a slowdown in employment growth, has pushed the unemployment rate higher. At 5.6% it is now at its highest level since July last year. 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.
From a Reserve Bank perspective, they’d naturally be happy that employment rebounded in April but they’d recognise that growth has certainly slowed and that there are upside risks to unemployment. Taken together with yesterday’s wage release, the latest round of labour market data is likely to delay any rate hike. Increasingly it appears as though we won’t see a rate hike before 2020.
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