The evidence is mounting that Australia's jobs boom might be over

Kevork Djansezian/Getty Images
  • Australian employment growth is slowing, leading to a recent increase in unemployment.
  • Online job vacancies fell for the first time in 17 months in April, hinting that the recent slowdown in hiring may extend into the second half of 2018.
  • Falling unemployment will likely be required to help boost wage and inflationary pressures, as well as economic growth.

After recording the largest increase over a calendar year on record in 2017, Australian employment growth appears to be slowing.

According to data from the Australian Bureau of Statistics (ABS), just 52,900 jobs have been created so far this year, equating to an average increase of 13,200 per month, well below the 34,600 average seen in 2017.

The slowdown in employment growth, accompanied by a strong increase in the number of Australians entering the labour force, has seen Australia’s unemployment rate rise to 5.6%, moving further away from the levels where wage growth is expected to accelerate.

Despite the recent soft patch in hiring, some, including the Reserve Bank of Australia (RBA), believe that hiring will remain at elevated levels this year, something it expects will help to gradually lower unemployment levels.

In the minutes of its May monetary policy meeting, the bank noted that “survey measures of job vacancies and hiring intentions, as well as information from the Bank’s liaison, pointed to above-average employment growth in the near term”.

It added that this, along with an expectation for firmer economic growth, “would reduce spare capacity in the economy and lead to a further gradual decline in the unemployment rate… [which] was expected to lead to a gradual pick-up in wages growth and inflation”.

However, not all lead indicators on employment growth suggest that hiring will continue at a decent clip, casting doubt over the RBA’s projections.

Indeed, after rising for 17 consecutive months, online job vacancies, as measured by the Australian government’s Internet Vacancy Index (IVI), actually fell in April.

According to Australia’s Department of Jobs and Small Business, online job vacancies fell by 0.5% to 183,500 in April in trend terms, snapping the longest stretch of consecutive increase seen since early 2011.

The decline saw annual growth in openings slow to 9%, down from 12.1% a month earlier.

As seen in the chart below, there is a clear inverse relationship between the IVI and Australia’s unemployment rate.

Australia Department of Jobs and Small Business

Adding to uncertainty, the government said vacancies fell in all of Australia’s most populous states in April — New South Wales, Victoria and Queensland — recording declines of 0.2%, 0.3% and 0.9% respectively.

Openings also fell in South Australia, the ACT and Northern Territory, and were flat in Tasmania. Western Australia was the only state to register an increase on a month earlier.

Australia Department of Jobs and Small Business

While vacancies rose in all states and territories aside from South Australia over the year, recent weakness in the most populous states — where much of the employment growth has been concentrated in recent years — is something that definitely needs to be watched.

Like the geographic performance seen in April, vacancies also fell in most occupational groupings, including in construction, trades and several services-orientated sectors.

Again, these areas are those that recorded some of the strongest employment growth in recent years.

Australia Department of Jobs and Small Business

The IVI is based on a count of online job advertisements newly lodged on SEEK, CareerOne and Australian JobSearch during a particular month.

The government says it does not reflect the total number of job advertisements in the labour market as it does not include jobs advertised through other online job boards, employer websites, word of mouth, in newspapers, and advertisements in shop windows.

It also does not specify whether vacancies are for full-time, part-time or casual workers.

While one month does not make a trend, and openings are still higher than they were a year ago in most regions and sectors, as a lead indicator on employment growth, the April report adds to mounting evidence that breakneck hiring seen in 2017 is unlikely to be repeated this year.

And with an increasing number of Australians entering the labour market, any slowdown in hiring could put further upward pressure on unemployment, especially if it’s not accompanied by a similar slowdown in new entrants to the workforce.

Right now, that’s exactly what’s not happening. Employment is slowing while the size of the labour force is still increasing at a decent clip.

Should those recent trends continue, it points to increased risks that inflation, wage growth and GDP growth will undershoot expectations.

It also means that lead labour market indicators, such as the IVI report, will become of more importance.

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