Weekly Economic Update: What is with the Labour Market?

In the uber ride on the way to the office today, the streets were noticeably quieter than usual. “It’s school holidays!” the driver reminds me, taking the trip in half the time than during the usual morning peak. The holiday period is certainly evident in the amount of empty desks surrounding me right now. Or maybe everyone is at home for the start of the long-awaited Game of Thrones final season airing this morning.

But the economy doesn’t stop for anyone. Even for the Mother of Dragons. Despite the two short weeks ahead of us, we will have two major Australian data releases; employment data this Thursday and CPI data next Wednesday.

On Thursday, employment is expected to rise a modest 8k in March following a 4.6k gain in February. It would imply a more moderate pace of employment gains in comparison over the second half of 2018, when employment gains averaged just over 20k. Indeed, with the softer employment gain, there is a risk that the unemployment rate could tick higher to 5.1%.

It has been difficult to reconcile recent strength of the labour market with the soft pace of economic growth. RBA Deputy Governor Debelle further added to this argument in a speech last week noting that other economies around the world had faced the same conflicting data. Debelle also raised the explanation of the labour market being a lagging indicator and questioned “why are businesses still continuing to hire people in the face of a slowdown in growth that started over six months ago?”

Debelle raises some good points. Nonetheless, the sharp fall in business confidence and conditions which occurred at the turn of the year and a more recent softening of job ads suggests to us that a moderation in labour market conditions is in prospect. The RBA is in wait-and-see mode and is hoping these tensions will resolve in the next few months. Its language has shifted to be more data dependent and more cautious. We could gain further insight in its minutes of the April board meeting, which be released tomorrow.



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RBA Minutes of the July Board&hellip