Daily Commentary BY THE CURVE TEAM –

Employment Data Provides Little Clarity

17th of May, 2019

Rather than provide the RBA and the market with some clarity over the outlook, yesterday’s employment data only provided further uncertainty.

The RBA is expecting ongoing strength in the labour market to underpin its outlook. On the surface, that is what they got from the April labour force data. Total employment grew by a solid 28,400 for the month well ahead of the 15,000 that was expected. It was also enough to lift the annual rate of employment growth to 2.6%, the fastest pace since June last year.

For the RBA to meet their forecasts, they need that strength to eat into the slack in the labour force. The problem they have though, that the the pace of new jobs growth isn’t enough to outpace the growth in rate of participation in a growing labour force.

As a result, another increase in the participation rate to a new high of 65.8% actually saw the unemployment rate rise. The 0.1% rise in the participation rate in April saw the unemployment rate rise to 5.2% from a revised 5.1%. The rise in the underemployment rate was worse, jumping from 8.2% to 8.5%.

So even with the ongoing strength in new jobs growth, the slack in the labour force actually increases over the past month, not decreased as the RBA desires to help boost wage growth. The data will put even more pressure on the RBA with the market now fully pricing in a cut for August with a second one almost fully priced in for November following the data.

David Flanagan

Director - Interest Rate Markets