Australian unemployment may be about to get a whole lot lower

Cameron Spencer/Getty Images for Red Bull Air RaceAustralian unemployment heading lower?
  • Australia has never had as many jobs waiting to be filled.
  • According to the ABS, there’s currently 234,200 job vacancies, up 21.4% from a year ago.
  • There are fewer unemployed competing for every job opening, something that usually signals that unemployment will decline.

Australia has never had as many jobs waiting to be filled.

According to the ABS, job vacancies soared in the three months to May, jumping by 4.6% to 234,200, up a staggering 21.4% from a year earlier.

Big growth. Period.

As things currently stand, the ratio of unemployed persons to vacancies is now the lowest level since early 2011, indicating there are less unemployed people competing for every vacancy there is.

It’s a sure sign that the labour market is tightening.

It also means Australia’s unemployment rate, currently sitting at 5.4%, could be about to get a whole lot lower.

This chart from Macquarie Bank explains why.

Macquarie Bank

It shows job vacancies as a percentage of total unemployed Australians — currently 714,600 — overlaid against Australia’s unemployment rate. The former has been inverted by Macquarie to show the relationship between the two.

When the ratio of job vacancies to job seekers rises, as is the case now, it has typically seen Australia’s unemployment rate decline.

While a promising sign that lower unemployment could fall substantially lower in the not too distant future, one can’t help but look at the widening gap between the ratio and Australia’s unemployment rate that’s developed in recent years.

Given where the ratio sits, it suggests Australia’s unemployment rate should be around 5%, or even lower, rather than at 5.4%.

It’s an anomaly, and begs the question whether its the vacancy report, or the unemployment rate, that’s generating a false signal on labour market tightness at present.

Or does the explanation lie somewhere in between?

It is unusual, but with most other leading labour market indicators continuing to improve, the risks for the unemployment rate appear to be all to the downside.

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