Data Snapshot: Labour Force - Unemployment Rate Falls to Six-year Low

Good afternoon,

 

• Employment fell 3.9k in July, only the second drop in jobs in nearly two years. However, in the context of a 58.2k increase in jobs over June, the soft monthly outcome for July does not come as a major surprise. The overall picture of the jobs market continues to be one of strength.
• The unemployment rate fell from 5.4% in June to 5.3% in July, the lowest in nearly six years. The fall reflected a drop in the in the participation rate from 65.7% in June to 65.5% in July. However, the gradual reduction in the unemployment rate over the past few years is pointing to a lessening of spare capacity in the labour market.
• Leading indicators and solid economic growth suggest employment gains should be sufficient to continue to bring the unemployment rate down over time. Indeed, we believe there is a reasonable risk that the unemployment rate will hit 5% in 2019, ahead of the RBA’s timing. This would suggest that the economy could approach full-employment some time next year, and point to a risk that wage pressures will build.
• We, however, remain sceptical that wage growth will pick up sufficiently for the RBA to lift interest rates any time soon, even with the unemployment rate approaching 5.0%. The experience from overseas suggests technological change and competition could limit the ability of firms to lift wages substantially.

 

Please see the attached report for more information.

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