One of the big questions for the Australian economy this year is whether or not 2015’s surprising strength in the employment market during 2015 was real or just a statistical quirk.
If the strength was a mirage, and there is substantial give back in 2016, then the economy is likely to much weaker than forecast. On the other hand, a continuation means Australia’s economy will continue to defy doomsayers.
RBA governor Glenn Stevens bought into the debate this morning in his opening statement to the House of Representatives Standing Committee on Economics in Sydney.
The RBA boss said growth in jobs was “a noticeably better outcome than we expected a year ago.”
That, he said, begs the question of how strong jobs growth and a fall in the unemployment rate accompany an economy growing “somewhat below-trend GDP.”
Stevens joined the chorus of interested parties questioning the integrity of the ABS employment data.
“Of course, it may be that the labour force data overstate the strength. Alternatively they may be telling us something not yet apparent in the GDP estimates. More data may shed light on this question over time,” he said.
Clearly this is not an unequivocal dismissal of the ABS data. But it is a reflection that there are few who understand how jobs growth has deviated so strongly from long run indicators of growth.
Stevens noted the “art of the reconciliation appears to be that growth has been concentrated somewhat in labour-intensive areas, like certain household and business services”.
But he also seems to put some stock on the fact that lower wages growth has led to additional employment.
Another part of the reconciliation probably lies in the very modest pace of growth of labour costs. At any given rate of unemployment, wages growth appears to have been lower than would have been expected based on historical relationships. In fact, at an economy-wide level, unit labour costs – that is, wages per unit of aggregate output – have not risen for four years. This has surely helped employment.
The jury is still out on Australia’s job growth. Many long-standing indicators suggest the jobs market is going to get weaker in the months ahead. Likewise given ABS sample rotation problems, there is a chance of some giveback in jobs growth.
But as the ANZ’s economics team highlighted in a note to clients yesterday, the Australian employment market is being driven by a “health jobs juggernaut.”
Justin Fabo, ANZ senior economist wrote that “health is likely to be a key source of medium-term jobs growth due to: the ageing population; more frequent use of health services by all age groups; rising incidence of chronic disease; increased spending on disability care and services, including the NDIS; and strong demand for child care”.
And that could be the answer to Stevens question, reconciling the strength in jobs and also low wages.
It also means Australia’s strong jobs market might have some way to run yet.
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