A reliable indicator shows Australian unemployment could soon be on the rise again

Ronald Martinez/Getty Images
  • Australia’s unemployment rate now sits at 5%, its lowest level in more than six years.
  • Roy Morgan Research’s separate Australian unemployment measure often leads movements in the official ABS data. Right now, the former is pointing to upside risks for the latter in the months ahead.
  • Australia’s official jobs report for October will be released on Thursday. The median economist forecast looks for an increase in unemployment to 5.1%.

Australia’s unemployment rate now sits at 5%, according to the Australian Bureau of Statistics (ABS), the lowest level in over six years.

Just four years ago, it stood at 6.4%.

The continued improvement has not unnoticed by policymakers at the Reserve Bank of Australia (RBA) who now expect the unemployment rate will continue fall to 4.75% by the middle of 2020, according to its latest forecasts, helping to boost GDP growth and inflationary pressures a little more than it initially thought.

But if the chart below is anything to go by, the recent downtrend could be about to reverse:

Macquarie Bank

From Macquarie Bank, it shows Australia’s official seasonally adjusted unemployment rate from the ABS, overlaid against Roy Morgan Research’s alternative unemployment measure.

The latter has been advanced by eight months by Macquarie.

While not a perfect relationship by any stretch, for whatever reason, the ABS figure is often led by movements in the Roy Morgan unemployment rate, particularly the latter’s trend measure.

Given the movement in the latter in recent months, it points to upside risks for the ABS measure in the months ahead, including Australia’s official jobs report for October that will be released on Thursday this week.

According to economist forecasts, the unemployment rate is tipped to lift to 5.1%, a result largely driven by an expected increase in labour force participation rather than slowdown in employment which is forecast to increase by 20,000 from September.

More broadly, should Australia’s unemployment rate lift further in the months ahead as the Roy Morgan measure suggests, it will cast renewed doubt over the prospects for faster wage growth, solid household spending and a slightly faster lift in inflationary pressures in the period ahead, as the RBA currently expects.

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