Here's what economists are saying about Australia's jobs report

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Australia had yet another bumper employment report today, recording its 11th straight month of job growth.

Not only that, but data from the ABS showed that seasonally-adjusted jobs growth for August smashed expectations, with an impressive 54,200 jobs added against a median forecast of 15,000.

Most of the monthly increase was driven by growth in full-time jobs, with an increase of 40,100 full-time positions in August.

That rise in full-time workers meant the total numbers of hours worked in August rose by 3.9 million (0.23%) to 1.709 billion.

The labour force participation rate also remained near annual highs, edging up by 0.1% to 65.2%.

And despite the higher number of people looking for work, the boost in monthly employment meant that the total number of unemployed Australian’s fell slightly.

However, while the number of Australians in work continues to climb, a relatively high number of people would still like to be working more hours if they could.

That means that despite a 0.2% fall in August, the underemployment rate remains elevated at 8.6% and underutilisation — the total of those unemployed and underemployed — is still higher than it was earlier in the year.

That extra slack in the labour market is likely to be part of the reason why consistent jobs growth hasn’t yet translated into higher wages for Australian workers.

And a meaningful pickup in wage growth will be a key factor not just for the outlook for inflation and interest rates, but also the domestic consumption component of GDP.

In view of that, this compilation of responses from various economists and strategists should help provide some extra nuance and context to today’s result.

Read below for a summary of their analysis.

Su-Lin Ong, Royal Bank of Canada

The data are consistent with the RBA’s optimism and narrative that a stronger labour market will, eventually, underpin higher wages growth and firmer core inflation. We caution, however, that 1) the global evidence suggests a much weaker link between employment growth/unemployment rate and wages growth/inflation, and 2) considerable slack remains as evidenced by the still elevated, albeit improving, underutilisation rate. Accordingly, we expect the RBA to remain in watch and wait mode with the cash rate on hold for the foreseeable future.

Labour market indicators are, however, likely to become increasingly important in the policy debate as we head into 2018. Despite the flattening of the Phillips curve, we suspect that a sustained break out of the 5½-6% range that the unemployment rate has been in for the last 2 years will be significant and could well change the policy bias even if wages growth does not pick up substantially.

Ben Jarman, JP Morgan

Unemployment held steady at 5.6%, as participation lifted 0.2%, and indeed participation and employment gains have become increasingly correlated in recent years. Average hours per employed person are also slightly down over the last year (-0.2%), and while the quarterly underemployment measure came down a couple of tenths relative to 2Q, it is steady over the last year.

These static trends in utilization are in contrast to the reported surge in full-time employment and total hours worked this year. Full-time employment in the household survey is now growing at 3.1%, having been contracting in annual terms moving into 2017. We therefore have a growing disconnect between the strong performance of the household labour force survey aggregates, which are extrapolated using population growth, and the measures of slack as reported in the survey, as well as household income trends reported in other ABS data.

As always, we view the unemployment rate as having the strongest signal, given that it is what households in the survey actually report, and as it automatically nets out any distortions from population growth and participation swings. The stability of unemployment in the 5.5-5.75% range this year, keeps the inflation outlook benign.

Felicity Emmett, ANZ

The recent strength in employment is very encouraging for the outlook. The RBA will no doubt be feeling more confident, given the impetus the improvement will give to household income. The strength looks to have at the very least narrowed the gap with other labour market indicators (and possibly overshot) so we expect a moderation over the next few months.

Indeed, we wouldn’t rule out a negative outcome in one of the next couple of months given how unusual it is for employment to grow more than 11 months in a row. Still, the improvement in underemployment is important, and will add to the RBA’s belief that wage growth will gradually accelerate.

Paul Dales, Capital Economics

The age-old volatility of Australia’s jobs data has given way to a remarkable period of consistency, with the 54,200 leap in August marking the eleventh rise in as many months. But there are two developments that take some of the gloss off August’s figures. First, although a 0.4% m/m rebound meant that the total number of hours worked has risen by 2.6% over the past year, the number of hours worked per employee has fallen by 0.2% over the last year. Second, the surge in the demand for workers isn’t significantly reducing spare capacity as the supply of labour is rising rapidly too.

Admittedly, the quarterly underutilisation rate, which includes those people who have a job but who want to work longer as well as the unemployed, did fall from 14.4% in May to 14.1% in August. But that just reversed the rise earlier this year. And it would need to fall to 12% before we can say that the amount of spare capacity in the labour market has fallen back to normal levels.

Callam Pickering,

Although the pace of employment growth is likely to moderate over the remainder of the year, towards more sustainable levels, it is likely that jobs growth this year will be among the highest on record. Perhaps the best news is that labour force participation has increased to its highest level in over five years. Full-time employment continues to make strong gains – up 40,000 people in August and 212,000 people over the past six months. This is a welcome development given that a majority of employment growth over the past five years has been in part-time or casual roles.

It remains difficult to square away these strong employment figures with such low consumer confidence. Normally strong employment growth is associated with improving sentiment. This could reflect ongoing weakness in wage growth or high debt levels but it suggests that the conditions on the ground are perhaps not as rosy as the employment figures suggest.

With the unemployment rate remaining at 5.6 per cent and measures of underemployment still elevated, there is still a high degree of slack across the labour market. This partially explains the ongoing weakness in wage growth and indicates that the economy still has some way to go before the Reserve Bank should tighten monetary policy.

Diana Mousina, AMP Capital

The positivity in the labour force data over the past six months months has been stronger than expected and jobs growth over recent periods has been across industries has really been broad based across professional services, construction, manufacturing, education and other household services. While the strength in the labour market is very positive for momentum in the Australian economy because of the flow-through to household budgets and sentiment, the outlook for Australia is still mixed because price pressures in the economy are low.

While price pressures are still running on the low end of the spectrum, we don’t think that the Reserve Bank needs to be raising interest rates. Wages growth is also still too low which means that the consumer sector will have trouble absorbing any interest rate hike (because it will increase interest payments on debt) alongside higher utility bills and a high stock of household debt.

The economy still remains in a transition phase towards stronger non-mining business investment and a lower contribution from the housing sector, which argues for low interest rates to continue. While we think the Reserve Bank will only start lifting interest rates in late 2018, the risk for now is that there is an earlier rate hike.

Justin Smirk, Westpac

There is the usual volatility in full-time/part-time employment but over the past few months the results are more indicative of a robust labour market. A further sign of the overall strength of this report was the 0.4% lift in hours worked which has resulted in the annual pace for total hours worked lifting to 2.6%yr which is the fastest pace seen since December 2015.

We should note that while the gain in participation have come from both males and females, the gains in from the females have been somewhat greater and they do appear to be on a more solid uptrend. By state, the strongest gains in female participation have been in Qld but they are also improving in NSW while Vic continues to hold very high levels of female participation.

All up this was positive update on the labour market following the robust trend sent by the leading indicators. While we still expect the monthly numbers to be quite volatile, the Jobs Index is pointing to total annual employment growth could hit 2.75% by early 2018. We have already exceeded this and unless we see further gains in the employment components of the business surveys it looks as if we may get an extended overshoot of employment that quite often follows an extended undershoot.

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