Australia’s March jobs report, released last Thursday, shot the light out in terms of headline employment growth, recording an increase of over 60,000 in seasonally adjusted terms, the largest gain since September 2015.
And all of those were full-time, adding a massive 74,500 for the month.
After several months of weakness, seeing the Reserve Bank of Australia (RBA) express renewed concern over labour market conditions in its April monetary policy statement, the rebound in hiring was interpreted by many as something that will help alleviate those concerns even though the unemployment rate held steady at 5.9%.
However, not everyone was enthused by the March result, including Macquarie Bank.
“Australia’s employment data for March was incredibly, and suspiciously, strong, with jobs rising by 60,900,” it said following the release of the report from the ABS.
“The headline jobs volatility confirms the sideshow nature of this aspect of the labour force data for interpreting underlying labour market, and broader economic, conditions.”
Despite the strength in the headline jobs figure, Macquarie noted that other labour market metrics, such as the unemployment rate and hours worked, remained subdued, hinting that “the underlying trends in the labour market continue to point to rising slack”.
“The part of the picture that matters — hours worked — continues to signal lacklustre demand for labour, and a persistence of current weak wage pressures,” it said.
It also noted that despite the surge in full-time employment — the second consecutive month that strong growth was recorded — full-time hours worked actually fell while the average full-time work-week shrank to an 11-month low.
Given the decline in hours worked, seen in the chart above, along with the unemployment rate remaining steady at 5.9%, Macquarie says elevated levels of labour market slack will add to disinflationary pressures, meaning that the risk for the next move in official interest rates remains slanted to the downside, even with hot housing market conditions in Sydney and Melbourne.
“As it stands, the unemployment rate is currently 10-15 basis points above the RBA’s unemployment rate projection, and will add downside pressure to a very weak inflation outlook,” it says.
“Regulatory success and further mortgage rate increases would allow the RBA to respond to subdued labour market and inflation outcomes.
“We remain of the view that the risk lies with the RBA’s next policy move being a cut, rather than a hike.”