When it met in December last year, the Reserve Bank of Australia said that there was still “considerable uncertainty” about the momentum in Australia’s labour market.
From the lofty 300,000 increase seen in 2015, employment growth was slowing fast, and, of the jobs that were being created, they were almost entirely part time positions, rather than full time roles.
Growth in hours worked was weak, and underemployment and underutilisation — measures of labour market slack — was elevated.
But then the labour market seemed to turn around, with some reasonable job growth reported in October and November, much of it full time.
On the surface, the data went from go to whoa in the space of just two months.
It’s little wonder that the board was uncertain as to what was happening, even pushing aside concerns about the veracity of the ABS’ seasonally adjusted numbers.
Following the release of Australia’s December jobs report earlier today, the trend of modest improvement in the labour market seemed to continue. Headline employment increased by over 13,000, and was yet again dominated by full time hiring.
Seemingly, an OK result.
However, to Tapas Strickland, an economist at the National Australia Bank, rather than helping to bolster the view that labour market conditions are improving, the underlying trends remain a concern, particularly towards employment growth in Australia’s non-mining states.
“Worryingly, trend employment growth in the non-mining states is still shows signs of softness,” he said following the release of the December report, singling out new South Wales in particular “where there has been no net jobs growth in the ABS data since mid-2016”.
This chart from the NAB shows the deceleration in trend employment growth over the second half of 2016.
A clear slowdown, and one that Strickland believes will do little to allay the RBA’s concerns about the underlying momentum in the labour market.
“Today’s employment data does not help allay these concerns,” he said, noting that should the the trend continue, it could ramifications for Australian interest rates.
“If the softening in non-mining indicators were to persist into 2017 and become more widespread in other labour market indicators, that would see the RBA reassessing their forecasts for inflation and growth, and could be the catalyst to further easing in later 2017.”
The National Australia Bank is in the minority when it comes to the outlook for Australian interest rates, forecasting that the RBA will deliver two 25 basis point rate cuts this year, taking the cash rate to just 1%.