Australia’s jobs markets has gone from strength-to-strength this year, a stark turnaround from the lacklustre conditions throughout most of 2016.
Over the past 12 months employment surged by 371,500, or an average of 31,000 per month. 316,000 of those were full-time workers, the largest increase over any 12 month period since data was first collated by the ABS in 1978.
Truly enormous, and with job ads continuing to increase, it looks like there’ll be plenty of further gains to come in the months ahead.
However, despite Australia’s recent hiring spree, wage growth of any magnitude is nowhere to be seen.
According to the most recent Wage Price Index released by the ABS, private sector wages grew by just 1.78% in the 12 months to June this year, the lowest level on record.
This is the largest employment sector in the country, meaning that for many workers real wages went backwards, with inflation running at 1.9% over the same period.
In what’s been an otherwise stellar run for Australia’s labour market it remains the missing piece of the jigsaw puzzle, weighed down by still ample levels of underutilised workers.
But perhaps that too may be about to change.
According to the National Australia Bank (NAB), there are signs of growing labour market shortages across certain industries, fitting with the view offered by Reserve Bank of Australia (RBA) governor Philip Lowe in a speech delivered last month.
Just take a look at this chart from the NAB’s quarterly Australian business survey released this week, overlaying Australia’s unemployment rate against the percentage of firms reporting difficulties in finding suitably skilled staff.
The latter, shown in red, has been inversed to demonstrate the relationship between the two.
Based on the firms surveyed by the NAB, staff shortages are building, suggesting that Australia’s unemployment rate may also start to edge lower over the period ahead.
“Firms indicated in Q3 that it became significantly more difficult for them to find suitable labour,” the NAB said, adding this “has been a clear trend within the NAB Survey measure since around mid-2015”.
“Given the elevated rate of underemployment in Australia, that result suggests that even though there continues to be a fair degree of slack in the labour market, there may be a lack of workers with the right skills to match employers’ needs.”
While that’s not the best of news for business or the economy, potentially placing a break on growth, it could be good news for workers who have been crying out for a meaningful pay increase in recent years.
The labour market is starting to tighten in some sectors, at least according to the NAB survey, which has usually foreshadowed a pickup in wage growth in the past.
The NAB says there are already signs that wage pressures are building, pointing out the wage bill for firms that participate in the survey rose smartly in the September quarter.
“Annualised growth in labour costs accelerated to 2.6% in the quarter from 2.2%, which is only modestly below the series average of around 2.8% since 1989, and indicates a notable uplift in wage pressures — something that has been absent from most ABS wage measures,” it says.
The great area of uncertainty is whether the increase was driven by a lift in wages or an increase in staffing levels, or a combination of both, with the NAB pointing out this measures total wages paid, meaning strong jobs growth may be contributing to the result as opposed to higher wages.
Reflecting the jump in employment seen over the past year, the number of hours worked by all employees rose by 3.4% to 1.7182 trillion hours in seasonally adjusted terms, according to ABS data.
An unusually large increase in Australia’s minimum wage rate that kicked in at the start of the quarter may also have been a temporary factor that helped to lift wage costs from a year earlier.
So no one is really sure whether the increase was driven by higher wages or simply an increasing number of staff.
What is known is that total wage bill increased.
Markets will get further clarification on how much the increase to the minimum wage rate impacted wage growth during the September quarter when the ABS releases Australia’s GDP and wage price index reports over the next six weeks.
However, even before those data points arrive, the NAB says wage growth will probably edge higher from here, eventually paving the way for an increase in interest rates from the RBA.
“Forward indicators suggest the labour market will tighten further… [with] difficulty finding labour tending to lead labour underutilization by two quarters,’ it says.
“[We] expect the unemployment rate will be low enough by mid-2018 to give the RBA greater confidence that wages and inflation will pick up.”