Daily Commentary BY THE CURVE TEAM –

Unemployment Rises as Slack Remains

18th of May, 2018

After a weak start to the year, employment growth returned in April. While strong business conditions continue to underpin growth in total employment, an ongoing pick up in workforce participation is resulting in an undesirable level of slack remaining in the labour force.

The latest domestic labour force data showed a solid increase in total employment of 22,600 in April after revisions to the previous month saw declines in total employment in February and March. Despite the growth in employment, another increase in the participation rate mean that the unemployment rate actually rose from 5.5% to 5.6%.

The latest increase in the unemployment rate has seen the trend start to turn up which is not a good omen for RBA and Treasury forecasts. It also suggest that the slack in the labour force is likely to take much longer to absorb than is currently expected which could see growth and inflation forecasts prove too optimistic.

Furthermore, the relationship between underemployment and wages continues to suggest that there is little chance of a pick up in wages on the horizon. The key to the outlook for the economy and wages remains underemployment and until we see it start to fall, then the risk to the downside to current forecasts will remain.

David Flanagan

Director - Interest Rate Markets