Daily Commentary BY THE CURVE TEAM –

Slack Remains Despite More Employment Records

16th of February, 2018

The strength of the labour market throughout 2017 has flowed through to the new year with yet another month of growth, capping a new record for the Australian employment market. However, despite the ongoing strength, slack remains in the labour market.

The Australian economy added a further 16,000 jobs in January, marking the longest run of uninterrupted employment growth on record. The solid run of growth is now up to 16 months after over 400,000 jobs were added over 2017 alone.

Despite the sustained growth in total employment, there is a large degree of slack that still remains in the employment market. The unemployment rate remains sticky in the mid 5% range, which is considered to be above conventional estimates of full employment according to the RBA.

The mix of employment growth and hours worked helps paint the full picture. While total employment was up, there was a big fall in full time and a rise in part time employment. It is likely that the reduction in aggregate hours worked suggests many dipped below the key 35 hours, which is where the cut off between full and part time employment is determined.

It is likely that the slack in the labour market is going to take time to be reduced. Appearing before parliament this morning, on the topic of the employment markets, Governor Lowe said that:

“We don’t expect a repeat of these very strong outcomes in 2018, but we do expect employment growth to be fast enough to see a further gradual reduction in the unemployment rate. The unemployment rate, though, is likely to remain above conventional estimates of full employment in Australia for some time.”

The key metric to watch over the months ahead remains the underemployment rate. If we see further signs of this rate starting to fall, we can be more confident that wage pressures will build in the months that follow.

David Flanagan

Director - Interest Rate Markets