The outlook for Australia's jobs market is suddenly murkier

  • Australian businesses surveyed by the NAB are reporting an increase in hiring along with capacity constraints.
  • Current trends point to even lower unemployment in the period ahead.
  • Not all leading labour market indicators are as strong as the NAB’s survey, creating some near-term doubt as to what may be seen in the official data in the months ahead.

Australian companies are adding to staffing levels as capacity constraints emerge, at least among those surveyed by the National Australia Bank (NAB) as part of its monthly business survey.

Based on historic relationships to official jobs data released by the Australian Bureau of Statistics (ABS), it points to the likelihood that Australia’s unemployment rate, already sitting at the lowest level in six years at 5.3%, may be about to get even lower.

Tom Kennedy, Economist at JP Morgan, explains:

The labour market related components of the [NAB’s September] survey remain strong, particularly the employment (+12) and capacity utilization measures (82.1%) which are elevated and continue to portend a strengthening labour market. While the correlation between these labour indicators and the official ABS data is far from perfect, these survey measures have historically done a decent job in gauging near term labour market momentum and suggest the risk is that recent labour market strength persists for a little longer.

This chart from JP Morgan shows the relationship between firms reported capacity utilisation and Australia’s unemployment rate.

JP Morgan

As Kennedy suggests, the relationship between the two is fairly good, particularly when evaluating broader trends rather than monthly movements.

The same could also be said for the second and final chart below from JP Morgan, showing the net balance of firms reporting an increase in headcount in any given month.

JP Morgan

Just like the official ABS data, after a weak period in 2016, the proportion of firms reporting an increase in hiring surged last year, and has remained elevated in 2018.

Along with record job vacancies, hinting that tighter labour market conditions may be contributing to increased skill shortages, the NAB survey paints a glowing picture on the outlook for unemployment.

However, while the signals from the NAB report mirror those from the Reserve Bank of Australia (RBA) which expects strong economic growth will lead to lower unemployment, faster wage growth and a pick-up in inflation, alternate leading labour market indicators have softened in recent months, creating some uncertainty towards the outlook.

Alternate measures of unemployment from Roy Morgan Research point to a lift in Australia’s unemployment rate in the months ahead, and separate surveys of services and construction firms from the Australian Industry Group indicate that staffing levels were cut fractionally during September.

Australian job ads, as measured by ANZ Bank, have also fallen in three of the past four months, seeing annual growth slow sharply compared to levels seen in recent years.

These are all surveys that have been around for years and, in contrast to what was seen in 2017 and early 2018 when all were strong, they’re currently offering mixed signals on what the near-term future holds.

In the end, it will be the official data that will hold most sway with policymakers at the RBA.

They, like financial markets, will be keeping a close eye on trends reported in the coming months, starting with Australia’s September jobs report that will be released on October 18.

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