Australian unemployment may struggle to fall much further from here

Matt Cardy/Getty ImagesTough slog ahead. Maybe.
  • Australia’s unemployment rate is trending lower, falling to 5.3% in July, the lowest level in six years.
  • An alternate Australian unemployment measure from Roy Morgan Research has moved higher this year. In the past, it has acted as a lead indicator for movements in official jobs data.
  • An increasing number of leading labour market indicators have also softened in recent months, pointing to a slowdown in hiring.

Australia’s unemployment rate, as measured by the ABS, has fallen to 5.3%, the lowest level in six years.

However, based on the chart below, further inroads into lowering unemployment in the months ahead may be hard to achieve from here.

Macquarie Bank

From Macquarie Bank, it shows Australia’s official unemployment rate overlaid against a separate unemployment measure produced by Roy Morgan Research.

The latter has been advanced eight months by Macquarie Bank, revealing a curious relationship between the two series despite being constructed differently.

More often that not, where the Roy Morgan reading moves, the ABS measure tends to follow.

In contrast to the downtrend in ABS series this year, Roy Morgan’s unemployment rate has been trending higher, pointing to the risk of a similar move in the official data based on the relationship seen in the past.

In October, RBA Governor Philip Lowe struck an optimistic tone on the outlook for unemployment, suggesting the “outlook for the labour market remains positive”.

“The vacancy rate is high and there are reports of skills shortages in some areas,” he said. “A further gradual decline in the unemployment rate is expected over the next couple of years to around 5%.”

While record vacancy levels suggests labour market conditions are tightening, helping to push down unemployment and gradually lift wage pressures, an increasing number of alternate leading labour market indicators have weakened in recent months, pointing to slower employment growth in the months ahead.

Australian job advertisements, as measured by ANZ Bank, fell by 0.8% in September after seasonal adjustments, adding to a 0.7% decline in August.

The September weakness saw annual growth in advertisements slow to 4.7% from 5.1%, continuing the theme seen since early 2018.

Separate employment indicators from the Australian Industry Group also revealed staffing levels across Australia’s services and construction sectors fell marginally in September. Like the ANZ job ads series, they too had been significantly stronger in the early parts of the year.

That suggests the weakness in those series may translate to a softening in Australia’s official jobs data in the months ahead.

Markets will get further clarification next week when the ABS releases Australia’s employment report for September on Thursday, October 18.

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