- August jobs growth in Australia comfortably beat expectations.
- Today’s data also showed a fall in the underemployment rate – a key indicator for future wage growth.
- Despite that, most economists agreed that there’s still some way to go before Australian workers see a material pickup in wages.
Australia’s labour market rebounded in August, with monthly jobs growth of 44,000 against a forecast rise of just 18,000.
At the same time, the level of labour force participation edged higher, which left the unemployment rate unchanged at a near six-year low of 5.3%.
Adding some extra colour to the jobs data, today’s report included quarterly figures on underemployment — people who are in work but would like to be working more hours.
And there was some positive news in the latest data, as the underemployment rate fell 0.3% percentage points to 8.1%.
Those levels are still quite high by historical standards, but the figures indicate at least some level of tightening in the labour market.
And economists agree it will need to tighten further before it will translate into a material pickup in wage growth for long-suffering Australian workers.
As usual, we’ve summarised all the expert commentary on today’s report. And aside from the headline figures, there were a number of interesting insights to be found by delving deeper into the data.
Here’s what they had to say:
Paul Dales, Capital Economics
The decline in the quarterly series of underemployment, which measures those people who have a job but would like to work longer, from 8.5% in May to 8.1% in August meant that the underutilisation rate (underemployment plus unemployment) fell from 13.9% to 13.4%. That means the labour market is gradually absorbing the excess supply, which is a prerequisite for a meaningful rise in wage growth.
However, the underutilisation rate is still much higher than it should be. If the trends of the past 18 months were to continue, it wouldn’t be until the start of 2020 that half of the unusual gap between the unemployment rate and the underutilisation rate is closed and until the start of 2022 that the gap completely disappears.
The rebound in employment was due to a 33,700 rise in the number of full-time jobs. But because the labour force rose by 49,800, the unemployment rate held steady at a near-six-year low of 5.3%. The only negative was that total hours worked were flat and average hours worked per employee fell by 0.3% m/m. So more people are working, but the average employee isn’t working as long.
Justin Smirk, Westpac
Flat growth in hours worked suggests we should be cautious about getting too excited by the 44,000 gain in employment. However, the ongoing decline in underemployment, particularly in Victoria, is something we are watching closely as it could be signalling a turning point for wage inflation.
The unemployment rate in Victoria, at 4.8%, is almost down to being on par with NSW (at 4.7%). When we last saw these levels in Victoria, unemployment was on a rising trend from the cyclical low of 4.4% in March 2011. This would be giving us a warning sign that wages may be about to accelerate in Victoria. This is also enhanced by the decline in unemployment to 7.7%, well down on the recent high of 9.3% in November 2016.
Victorian wages have been responsive to improvements in underutilisation (the combination of underemployment and unemployment) and the significant improvement in underutilisation since December 2015 suggest we should very soon see a pick-up in Victorian wages inflation. This is something we will be looking closely at in the September quarter Wage Price Index.
This was a solid update on the labour market reporting solid gains in employment, mostly full-time as well as reporting a decline in underemployment. But it is not setting the world on fire, as hours worked were soft and while male unemployment is improving, female unemployment continues to rise as rising female participation means the lift in the supply of female labour is currently exceeding the lift in demand.
Our forecast for employment gains to hold around trend to year end will see the annual rate dip back to 2%yr but this is enough to hold the unemployment rate flat at 5.3% with further modest gains in participation.
Shane Oliver, AMP Capital
The strength in jobs growth is eating into unemployment, but only gradually, because the civilian working-age population is growing strongly at 1.6% year on year. In addition, labour force participation has been trending up over the last few years driven by rising female participation.
The strong labour market has also cut into underemployment which fell to 8.1% in August from 8.5% in May. However, total labour market underutilisation (unemployment plus underemployment) remains very high at 13.4%, in contrast to the US where its fallen to 7.4% which is about as low as it ever gets. As a result, the pick-up in wages growth is likely to remain very gradual in contrast to the US.
The strong labour market is clearly a source of strength for household incomes and if sustained points to stronger wages growth. However, still-high underutilisation points to the pick-up in wages growth being very gradual, and it will be a while before its consistent with the midpoint of the RBA’s inflation target. As such we remain of the view that the RBA will leave interest rates on hold out to 2020 at least.
Kristina Clifton, Commonwealth Bank
The details were good with the majority of new jobs full-time. Full-time jobs growth is particularly welcome at the moment as the underemployment is still quite high. Employment growth has been volatile this year, but the trend data shows jobs growth of 29,000 per month. With the working age population increasing by around 20,000 each month, this is enough to keep downward pressure on the unemployment rate.
A rise in the participation rate meant the unemployment rate was unchanged. And a fall in the underemployment rate, which has been stubbornly high for some years now, is perhaps the standout feature.
We expect above trend GDP growth over the next few years. This growth should help bring down the unemployment rate even further. A tightening labour market means that wages and inflationary pressures will pick up. We expect the RBA to start its interest rate tightening cycle in November 2019.
Ben Jarman, JP Morgan
Underemployment remains elevated relative to its historical relationship with unemployment, but has nevertheless been coming down in recent readings. Somewhat contrary to that, hours worked were flat over the month and down 0.3% m/m per worker. Average hours are also down over the last year (-0.4%), suggesting the reduction in underemployment of late is purely reflecting the reduction in the pool of the unemployed.
Previously, gradual reductions in unemployment had come at the cost of materially weaker average hours, leaving underemployment steady overall. The ‘wedge’ between unemployment and underemployment therefore remains, but at least isn’t widening as it was over 2015-17.
The outlook for household income in the near-term depends on the ability of the supply side to stay strong, generating employment gains. Employment is slowing relative to last year, but only gradually, which should make the deceleration in income growth fairly gradual.
At the same time, with underemployment coming down, today’s numbers play to the RBA’s view that slack is gradually being eroded allowing an eventual recovery in wage inflation.
Felicity Emmett, ANZ
Importantly, the underemployment rate edged down to 8.1% from the 8.5% reported in May. This leaves overall labour market underutilisation at 13.4%. While still high in historical terms, that is well down from the peak of 14.8% in November 2014. Given our earlier research showing the impact on wage growth, the ongoing improvement in underemployment is an encouraging sign.
From next month, the ABS plans to release seasonally adjusted estimates of the underemployment and underutilisation rates on a monthly basis, which will give us a timelier guide on these indicators.
Leading indicators for the labour market are slightly more mixed than they have been, but point to annual employment of around 2.5%. This suggests that a solid labour market is likely to continue to support consumer confidence and spending, providing some offset to the weakness in house prices.
Callam Pickering, Indeed jobs website
From a Reserve Bank perspective, they will view this as an extremely positive jobs report. It probably doesn’t change the near-term likelihood of a rate hike but it certainly points to an economy that is heading in the right direction. There is mounting evidence that wage growth is on the improve but we are still a long way from seeing the type of wage growth that will push inflation towards the middle of the RBA’s 2-3% target.
Particularly welcome has been the recent improvement in full-time employment. Full-time roles were a little scarce towards the beginning of this year but have certainly improved in recent months. Full-time roles have accounted for around three-quarters of employment growth over the past three months.
A further positive is the ongoing improvement in labour market outcomes for younger Australians. The unemployment rate among 15-24 year olds has declined to 11.2%, from 12.4% at the beginning of the year, with the decline particularly impressive since it has coincided with a sizable increase in participation.
Total hours worked across the Australian economy increased by 1.8% over the past year. This is somewhat disappointing because over the same period employment rose by 2.5%. Consequently, hours worked per person continues to tumble. This largely reflects the fact that an increasing share of the Australian workforce is in part-time or casual roles, despite the recent strength in full-time employment growth.
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