- Australia’s unemployment rate fell to the lowest level since April 2012 in September.
- A modest increase in employment, along with a sharp drop in the size of Australia’s labour force, saw the number of unemployed Australians fall by 37,200 to 665,800 – the lowest level since February 2013.
- Australia’s unemployment rate is now at the level where the RBA expects wage and inflationary pressures will start to accelerate.
Australia’s unemployment rate has fallen to the lowest level since April 2012.
According to the Australian Bureau of Statistics (ABS), the unemployment rate tumbled to 5.0% in September in seasonally adjusted terms, well below the 5.3% level forecast by economists.
Importantly, unemployment now sits at the level where the RBA estimates that wage and inflationary pressures will start to build, known as the non-accelerating inflation rate of unemployment, or NAIRU for short.
The bank didn’t expect unemployment to hit NAIRU until the end of 2020, according to its latest set of forecasts offered just over a month ago.
Rather than a surge in hiring, the steep drop in unemployment reflected a decline in the size of Australia’s labour force which tumbled by 31,600 to 13.302 million after seasonal adjustments.
Employment rose by 5,600 from August, below the 15,000 increase expected by economists.
August’s jobs increase — originally reported at 44,000 — was revised up to show a gain of 44,600.
Full-time employment increased by 20,300 over the month, partially offset by a drop in part-time employment of 14,700.
Over the year, full-time employment surged by 217,500, nearly four times higher than the 63,400 increase in part-time employment over the same period.
By state, the ABS said the largest increase in employment was in Victoria at 20,000, outpacing gains of 3,100 and 2,800 respectively in Western Australia and New South Wales. Queensland, at 11,600, recorded the steepest decline in employment across the country.
After seasonal adjustments, unemployment fell in all states except for Tasmania where it held steady at 5.8%. New South Wales, at 4.4%, retained the title of the state with the lowest unemployment rate in Australia.
With employment inching higher wile the size of Australia’s labour market fell, the total number of unemployed workers fell by 37,200 to 665,800, the lowest level since February 2013.
With a large number of workers exiting the labour market, Australia’s labour force participation rate — measuring the proportion of Australia’s working age population in employment or actively seeking work — fell to 65.4% from 65.7% a month earlier, the lowest level since October 2017.
Mirroring the split in hiring seen last month, the number of total hours worked increased by 6.2 million hours to 1.7575 billion hours.
In what is good news on the prospects for employment growth, broader measures of labour market slack also declined in line with the drop in unemployment.
Underemployment — measuring the proportion of the workforce with a job but who would like to work more hours — was steady at 8.3% in seasonally adjusted terms.
However, Australia’s underutilisation ratio — combining both underemployed and unemployed workers — fell to 13.3%, down 0.2% percentage points from August.
Many regard the underutilisation ratio as being more influential on changes in wage levels.
While the proportion of underutilised workers in the workforce continues to decline, and unemployment now sits at Australia’s estimated NAIRU level, Paul Dales, Chief Australia and New Zealand Economist at Capital Economics, doesn’t expect it will suddenly herald a sharp pick-up in wage growth.
“Our message on whether that will trigger much faster wage growth is ‘don’t hold your breath’,” he said.
“Just because that’s now in line with the RBA’s estimate of the natural rate, there are three reasons why it doesn’t mean that wage growth is suddenly going to jump from 2.1%.
“First, we think the natural rate is closer to 4.0%, so the unemployment rate could probably fall someway further before the cyclical upward pressure on wage growth intensifies.
“Second, the unemployment rate is not capturing all the spare capacity. The ABS’s new estimate of the monthly underemployment rate stayed at 8.7% in September, which is still unusually high.
“Third, the structural forces that have restrained wage growth in all major economies aren’t going to disappear.”
Rather than a sharp acceleration in wage growth, Dales says the path for wages — as seen in other advanced economies where unemployment sits at or below NAIRU — is likely to be moderately higher.
“As the amount of spare capacity in the labour market continues to decline, wage growth will probably edge up. But in 2020, it may still be only 2.5%,” he says, pointing out Australian wages — as measured by the ABS wage price index — only grew by 2.1% in the year to June this year.
Callam Pickering, APAC Economist for global job site Indeed, also expressed some concern about the volatility in the September jobs report.
“The monthly figures can be highly volatile and we shouldn’t overreact to such a strong unemployment figure,” he says.
“The labour market has performed well recently, reducing labour market slack, but a 5% unemployment rate is still a little too good to be true.”
Pickering says today’s report provides a perfect example of why the RBA tends to focus on the trend figures “which confirm that we still have some way to go before unemployment begins to put pressure on wages”.
In trend terms, the ABS said Australia’s unemployment rate was steady at 5.2%.
Suggesting that many traders and investors share similar sentiments to Pickering, the reaction in Australian financial markets to the report has been incredibly muted with the Australian dollar modestly higher while government bond futures have softened marginally.
That suggests a degree of scepticism towards the seasonally adjusted figures. However, while one month may be an anomaly, two months is a trend.
It’ll be interesting to see whether the October jobs report will back the strength seen in today’s report.