Labour Force - Spare Capacity Still Hanging Around

• Jobs grew 22.6k in April, close to expectations. Nonetheless, April’s job gain comes off the back of weakness over February and March, when jobs declined 7.4k and -0.7k, respectively.
• Average monthly job gains over 2018 stood at just 13.2k, far below the average monthly gain of 34.6k over 2017. A slower pace of job growth has taken hold since the beginning of the year, although it in part reflects some payback for last year’s strength.
• The unemployment rate edged up from 5.5% in March to 5.6% in April. After back revisions, it was the highest in nine months. However, this was mostly as a result of more people entering the workforce.  The participation rate lifted from 65.5% in March to 65.6% in April, close to a record high.
• The slower pace of employment growth since the turn of the year raises doubts as to whether sufficient spare capacity in the labour market will be absorbed for a meaningful pickup in wages and inflation.
• We expect that jobs will continue to grow sufficiently for some reduction in the unemployment rate. The upswing in the global economy, buoyant business conditions and the pace of domestic demand points to a relatively healthy rate of job growth.
• That said, we are far from hitting a 5.0% unemployment rate, the RBA’s estimate of the unemployment rate at full employment. Indeed, there is a risk that the unemployment rate at full-employment is even lower. It suggests that there is not much prospect of a meaningful pickup in wages while spare capacity in the labour market is likely to persist.

 

Please see the attached report for more information.

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