Despite some strength in recent months, 2016 was, by its usual standards, a pretty weak period for Australia’s labour market.
Employment growth slowed sharply, with what growth there was driven by Victoria, while wage growth fell to the lowest level on record based on the ABS wage price index, something that was driven by a combination of low inflation, elevated underemployment and below-trend economic growth.
It wasn’t a great year by any stretch.
And while that trend looks set to continue in the months ahead, there’s reason for hope that better times lie ahead, at least if the latest quarterly Australian business confidence survey from the National Australia Bank is anything to go by.
This chart, found within the NAB report, looks at the net balance of firms that are currently hiring, and who expect to hire in the period ahead.
The red and black lines, indicating current hiring and hiring intentions looking three months ahead, are pretty subdued, and largely unchanged, from what was reported in the previous survey. However, the grey line — showing the balance of firms who intend to hire over the next year — is showing some positive signs.
It’s actually risen to a multi-year high.
“Near-term employment expectations were steady at +7 index points, which is above its long-run average level,” said the NAB. “At the same time, longer-term expectations lifted, hitting a multi year high.”
“That outcomes suggest that the unemployment rate could still see a gradual improvement in the longer-term,” it says.
It may only be intentions rather than actual hiring, but it’s an optimistic outcome nonetheless.
Along with more firms saying that they intend to increase the size of their workforce, there was also some good news on the wage front, if only for people with specific skill sets, with firms also reporting that they have had greater difficulty in finding suitable labour recently.
“Given the elevated rate of unemployment, that result suggests that even though the labour market remains fairly loose, there is a lack of workers with the right skills to match employers’ needs,” says the NAB.
While the types of skills required by firms was not specified, there’s been a variety of other surveys from other sources that look at the most in-demand skills firms currently require.
The inability to find suitable workers suggests that wage pressures may build for some workers, even if labour market conditions remain soft.
However, despite the cautious optimism in relation to hiring and wages, it must be said that other parts of the NAB survey — specifically lead indicators for future business activity — were less optimistic, casting some doubt on the labour market readings.
“Forward orders were still positive, but dropped back in the quarter, while expectations for business conditions in the next 3 and 12 months dropped slightly as well — although the latter is still up from Q2 2016,” said the NAB. “Meanwhile, capacity utilisation rates eased slightly, which followed a larger fall in Q3 2016.”
The NAB suggests that tighter capacity is needed to help encourage the sort of investment and employment growth that is needed to drive the economy going forward.
As a result, the NAB has a less optimistic view towards the outlook for labour market conditions, suggesting that the unemployment rate will likely remain relatively steady given solid population growth and insufficient job creation.
The ABS will release Australia’s January jobs report on Thursday, February 16. That will be followed six days later by the ABS’ December quarter wage price index.