If there’s one thing that stood out from the minutes of the Reserve Bank of Australia’s November monetary policy meeting, it’s the heightened levels of uncertainty about what is happening in Australia’s jobs market.
As my colleague Greg Mckenna wrote following its release, it appears that the RBA doesn’t seem to know what’s going on with Australia’s jobs market.
In what was an otherwise upbeat assessment of the economy, there was the one ominous black cloud on the horizon.
“Members noted that the degree of spare capacity in the labour market depended on how many additional hours workers were seeking and that relevant data were not readily available,” the minutes said.
That was followed up with the admission that this was creating uncertainty as to how it “might ultimately affect inflationary pressures”.
Not exactly ideal, and certainly not helped by well known issues with the ABS’ seasonally adjusted jobs figures which have more resembled a random-number generator recently rather than a definitive report on what’s happening within the labour market.
Given this uncertainty, something that has the potential to impact household consumption, wage growth, the outlook for inflation and economic growth in the period ahead, it makes upcoming wage and employment data from the ABS — arriving over the next two days — all the more important.
On Wednesday, the ABS will release its Q3 wage price index, a measure on the change in wages paid by Australian businesses to employees in the three months to September.
Despite a recent decline in the unemployment rate, Jo Masters, senior economist at ANZ, says that wage growth is likely to remain subdued thanks to elevated levels of labour market slack, or simply elevated levels of underutilised workers.
“Wage growth is expected to show signs of stabilisation – a result in line with our expectations would be the fourth consecutive 0.5% quarterly rise,” she says. “While the unemployment rate has fallen, there is still sufficient spare capacity in the labour market to keep wage growth muted.”
Should ANZ be correct, and without revisions, there’s a strong possibility that the year-on-year increase could fall to the lowest level seen since the survey began back in 1997.
Of particular note, markets will be paying close attention to the breakdown between public and private sector wages, particularly the latter as it is by far the largest employer across the nation.
Following the wage price index on Wednesday will be Australia’s October jobs report on Thursday.
Yes, the random-number generator that I believe is contributing to, rather than diminishing, uncertainty for the RBA.
Felicity Emmett, head of Australian economics at ANZ, has been brave enough to put out a forecast for monthly jobs growth, predicting a strong rebound in employment following two months of losses.
“We look for a rise of 25,000 and an unchanged unemployment rate of 5.6%,” she says. “While business surveys suggest reduced momentum in the economy, job ads rose solidly in October – suggesting the labour market remains in relatively good shape.”
However, not everyone shares this view. Reflective of heightened uncertainty, some believe the labour market is far weaker than what the headline figures would suggest.
While the RBA is unlikely to move interest rates anytime soon, continued weakness in labour market indicators will be of concern, particularly given that it sees “significant uncertainty about the outlook for consumption growth given uncertainty about households’ expectations of their income growth and the influence of these expectations on their spending and saving decisions”.
This is the largest component within the Australian economy by some margin, and a further deterioration will certainly bring the prospect of rate cuts back on the table.
Hopefully the twin data releases will provide clarity for RBA, rather than even more uncertainty.
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