We're about to find out much more about the future of wage growth in Australia

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  • Australia has created jobs in each of the past 16 months, the longest stretch on record.
  • Economists expect that stretch to extend to 17 months next week, forecasting another big increase in employment in February.
  • The jobs report will also contain quarterly underemployment and underutilisation data, two important readings when it comes to the outlook for wage growth.

Australia has created jobs monthly for the past 16 months, the longest stretch of consecutive job creation on record.

Economists think that stretch will get even longer next week when the ABS releases its February jobs report, adding to the mammoth 400,000 plus increase in employment recorded over the past 12 months.

Of the 21 economists polled by Bloomberg, the median forecast is looking for an increase in employment of 20,000. Individual forecasts range from a gain of anywhere between 8,000 to 30,000 — no one expects a decline.

While one of the biggest red flags to contrarian investors is the expression “economists agree”, given recent history, it’s understandable why everyone expects employment to increase when the report is released next Thursday.

With solid employment growth expected and labour market participation tipped to remain at 65.6%, Australia’s unemployment rate is seen holding steady at 5.5%, still well above the 5% level many believe it will need to fall below before wage pressures start to build.

Adding extra clout to the February report, it will also contain quarterly data or underemployment, measuring the number of Australians who have a job but who would like to work more hours.

Combined with unemployment figures, this will provide Australia’s underutilisation rate, a reading on the level of labour market slack that exists in the labour market.

Rather than Australia’s unemployment rate, the underutilisation rate has a better overall relationship to changes in wage growth.

That can be seen in the chart below from Westpac Bank.

Source: Westpac Bank

When Australia’s underutilisation figure was last released in November, it stood at 13.7%, still elevated compared to periods seen before the global financial crisis.

With so much slack still within the labour market, it goes someway to explaining why wage growth in Australia remains so low.

Given the Reserve Bank of Australia (RBA) is banking on a gradual increase in wage growth to help support economic growth and build inflationary pressures, expect there to be more attention than usual on the underutilisation figure.

A further decline will add to confidence that labour market conditions are tightening, something that should help boost wage pressures.

However, an unchanged or even higher reading will have the opposite effect, intensifying concerns that wage growth may stay weaker for longer.

The February jobs report will be released on Thursday, March 22.

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