Australia's jobs report beats, unemployment falls to 5%

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  • Australia’s unemployment rate fell unexpectedly in December, and now sits at the lowest level since June 2011.
  • Employment increased by 21,600, above what markets were expecting. All of the gains came from part-time workers.
  • Broader measures of labour market slack also declined, a helpful outcome in helping to spur on wage pressures.
  • The report will do little to dissuade the RBA’s view that stronger labour market conditions will help to gradually lead to lower unemployment and faster wage and inflationary pressures.
  • Financial markets are still pricing in a 50% chance that the cash rate will be reduced by November.

Australia’s unemployment fell in December as employment grew faster than the size of the labour force.

According to the Australian Bureau of Statistics (ABS), unemployment fell to 5.0% after seasonal adjustments, coming in the below the 5.1% level expected by economists.

It now sits at the lowest level since June 2011. Markets had been expecting unemployment to remain steady at 5.1%.

The decline reflected that employment grew faster than the size of the Australian workforce in December.

Employment rose by 21,600 after seasonal adjustments, topping expectations for an increase of 18,000.

All of the increase was in part-time employment which rose by 24,600, masking a 3,000 decline in full-time workers. That was the second month in a row that full-time employment fell.

Total hours worked inched higher over the month, lifting by 0.1% to 1.7589 billion hours.

Over the year, full-time employment increased by 162,000, outpacing a 106,600 lift in part-time workers.

Helping to explain the decline in the unemployment rate, the participation rate — the proportion of Australia’s working age population in employment or actively work — dipped to 65.6%, below the 65.7% level of November. In numeric terms, the labour force grew by 7,500 during the month.

With employment growing faster than the size of workforce, the number of unemployed workers fell by 14,100 to 666,700.

The employment-to-population ratio — capturing the proportion of Australia’s working age population in employment — also ticked higher by 0.1 percentage points to 62.4% in seasonally adjusted terms, leaving it at the highest level in a decade.

By state, unemployment in Victoria fell by 0.3 percentage points to 4.2%, the lowest level in the country in seasonally adjusted terms. Unemployment also fell in Queensland and Western Australia but increased in South Australia and Tasmania. In New South Wales, Australia’s most populous state, unemployment held steady at 4.3%.

ABS

The largest gains in employment occurred in Queensland, Victoria and New South Wales, increasing by 11,600, 10,500 and 3,800 from a month earlier. The largest decline was seen in Western Australia where employment fell by 15,300.

Like Australia’s unemployment rate, broader measures of labour market slack also decreased — a good sign on the prospects for wage growth in the period ahead.

The underemployment rate — measuring those workers with a job but who would like to work more hours — fell by 0.1 percentage points to 8.4% after seasonal adjustments.

Combined with unemployed workers, the underutilisation rate fell by a larger 0.2 percentage points to 13.3%, reversing an increase seen in November.

The underutilisation rate is the broadest measure of slack that exists within Australia’s labour market. It also has a far stronger inverse relationship to Australian wage pressures than the unemployment rate in the post-GFC era.

While the decline is welcome, it still remains at elevated levels, suggesting any increase in wage growth in the period ahead is likely to be modest. Significant progress in reducing the number of underutilised workers will likely be required to push wage growth back towards the levels seen before the GFC.

Although the halcyon days of strong wage growth are unlikely to be seen for quite some time, there’s very little to dislike about the December jobs report.

Unemployment fell, more Australians found work and labour market slack was further reduced — a good combination in anyone’s language.

And while full-time employment declined for a second month, that followed significant growth earlier in the year. Context is required.

While financial markets and an increasing number of economists continue to speculate about the prospects for a rate cut later this year, the RBA will be pleased with the details of today’s report.

Stronger labour market conditions are factored into its inflation and GDP growth forecasts, and the December report will not alter its view that the jobs market is slowly improving, especially with the leading indicators still pointing to strong employment growth ahead.

Financial markets share that view with the Australian dollar and government bond yields lifting following its release. However, interbank futures still price the odds of a 25 basis point cut in the RBA cash rate by November at around 50%.

The next big economic release in Australia will be the Q4 CPI report on Wednesday next week. Unlike recent jobs data, it’s expected to remain very weak, keeping the prospect of a rate cut on the table.

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