For what seems to be the umpteenth time this year, Australia’s latest jobs report smashed expectations.
According to the Australian Bureau of Statistics (ABS), employment jumped by 61,600 in November, breezing past forecasts for an increase of 19,000.
It was the largest monthly increase since October 2015.
Full-time employment jumped by 41,900, outpacing a 19,700 increase in part-time employment. Over the year, full-time employment increased by 304,600, far outpacing a 78,700 increase in part-time employment. Combined, total employment increased by a mammoth 383,300, the second-fastest annual increase on record.
Adding to the stellar report, total hours worked jumped while labour market underemployment and underutilisation fell, boding well on the outlook for wage pressures.
And while the unemployment rate held steady at 5.4%, that was only because labour market participation surged to 65.5%, leaving it at the highest level in over six years.
Put another way, had it not been for more Australians either obtaining or looking for work, unemployment too would have fallen to a fresh multi-year low.
Everywhere you looked, it was hard to poke holes in the November report. The internals were all good. Very good.
Financial markets certainly thought so, pushing the Australian dollar up to a five-week high while government bond futures fell, indicating an increased likelihood that it may prompt the Reserve Bank of Australia to lift interest rates earlier than many previously thought.
While markets have had their say, it’s now time to see what the economists have made of it all. Is it a game changer for interest rates, or just another solid jobs report?
Let’s find out.
Tom Kennedy, JP Morgan
While the employment data have been unquestionably strong, it is important to highlight that this strength has been very closely correlated with a surge in labour force participation. The correlation between employment and participation changes has become very pronounced since 2014, with the unemployment rate holding relatively steady, slipping just three-tenths in the past year. The fact that the jobless rate remains comfortably above NAIRU (non-accelerating inflation rate of unemployment) at around 5% underpins our forecast that a meaningful recovery in wage growth is still a distant prospect.
We have previously noted that much of the recent acceleration in employment and participation is the result of hiring and participation spillovers related to the national rollout of the National Disability Insurance Scheme (NDIS). Next week’s ABS quarterly employment data by industry will provide an important update on this view, with employment growth once again expected to be strong across the health and social services sectors.
The RBA will be encouraged by the decline in the unemployment rate through 2017, and the strength of employment allows officials to maintain their relatively upbeat tone. But it is hard to attribute cyclical significance to the resurgence of employment given the population growth and health care drivers, which will struggle to maintain their current trajectory. Further, benign wage growth, elevated underemployment and sub-trend real GDP growth, will require officials to see much further progress on reducing the unemployment rate in order to change their neutral policy outlook.
Callam Pickering, Indeed
We anticipate that employment growth will begin to moderate towards more sustainable levels next year. The Australian economy simply isn’t big enough to sustain employment growth of over 30,000 people a month as has been the case throughout 2017.
If employment growth remains solid over the first half of next year then the unemployment rate could fall towards 5% faster than anticipated.
Although this was an outstanding jobs report, there remains a high degree of slack across the labour market. This helps to explain the ongoing weakness in wage growth and the cautiousness of Australian households. We believe that there is reason to be optimistic on wages, particularly now that businesses are cashed up and some report a greater difficulty in finding new staff, but improvement could be slow.
The Reserve Bank would naturally be pleased with today’s outcome. Employment growth, particularly full-time roles, has been a real bright spot for the economy this year. Nevertheless, with wage growth still so low, tighter monetary policy is still unlikely during 2018.
Gareth Aird, Commonwealth Bank
Today’s employment report was incredibly strong.
The improvement in the labour market over the past nine months is quite remarkable. Employment growth has been phenomenal and there has been a tightening in the labour market. From a monetary policy perspective there are two questions that must be asked: can the improvement continue, and, if so, when will wages and inflation lift?
On the first question, we think that the labour market will continue to tighten in 2018, although we expect employment growth to ease from 3.2%. And on the second question, we think wages growth will lift gradually, but not sufficiently so to bring a rate rise into the fray until late 2018.
Notwithstanding, the strong job reports all but confirm that the next move in rates is up. And the RBA will head into the new year feeling more confident around its forecasts for economic growth to run above trend in 2018.
Felicity Emmett, ANZ
Another strong gain in employment confirms that underlying momentum in the economy remains solid. Importantly, the improvement in the labour market looks to be drawing more workers back into the labour force, with the participation rate hitting a six-year high.
While the strength in the labour market continues to suggest that the economy is in good shape, we think there has been some overshoot in the employment numbers recently. Specifically, indicators like ANZ Job Ads and the profitability and employment indexes from the NAB survey, suggest that jobs growth is likely to pull back over coming months.
That said, the strength in the economy suggests that the labour market is likely to continue to improve and the unemployment rate is set to gradually fall over the next few years, which should eventually feed through into stronger wage growth.
Kate Hickie, Capital Economics
It has clearly been a stellar year for the labour market, and this will raise the annual growth rate of household disposable income from the very weak 0.5% in the third quarter. And while such elevated rates of jobs growth are unlikely to be sustained, most leading indicators suggest employment growth will remain decent in the coming months.
Offsetting this, however, the outlook for wage growth is still fairly subdued. Admittedly, the unemployment rate held steady at a five-year low of 5.4% and the strong rates of full-time jobs growth pushed down the underemployment rate from 8.5% in August to 8.3%. All this suggests that there has been a decent reduction in slack in the labour market. Even so, at 13.7% the underutilisation rate — which combines the underemployment and unemployment rate — is still comfortably above its post crisis average of around 13.0%, so there is still a long way to go.
As a result, we expect wage growth will only rise from 2.0% to around 2.5% by the end of 2019. That would be well below the pre-crisis average of 3.5% and is a key reason we expect inflation to remain low for longer than the RBA currently expects.
Diana Mousina, AMP Capital
The labour market has remained very strong in 2017. Jobs growth have come from construction areas and in service-based sectors like healthcare, education and accommodation and food services which all relate to Australia’s above-OECD average population growth rates and strong tourism inflows.
Trends around strong employment gains in service-related areas are likely to continue, but further employment in construction will start to fade in 2018, as residential construction has reached its peak in this housing cycle. Leading indicators suggest moderate employment growth in 2018, but at a slower pace, probably closer to 2% on an annual basis.
Improving GDP growth over 2017 and strong employment growth has still not been enough to lift wages growth, which remains around a record low of around 2% on an annual basis. The recent NAB survey showed a pick up in domestic labour costs and has historically led some turning points in labour price momentum. Businesses also indicated that “wage costs” were one of the most influential issues affecting business confidence.
We see some upside for wages growth in 2018, which is positive for consumers, but it will be slow and gradual and not enough to become a concern to the Reserve Bank of Australia.
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