Daily Commentary BY THE CURVE TEAM –

Full Employment Remains Elusive

8th of October, 2019

The latest US employment data highlights how big the hurdle could be for the RBA.

Non-farm payrolls were released on Friday night and most of the focus was on the small miss in the number of new jobs in September. Total jobs growth was 136,000, just short of estimates and lower than the recent average of monthly gains.

Despite the softening in the pace of jobs growth in the US in recent months, the unemployment rate has dipped to a new multi-decade low. The unemployment rate now sits at 3.5%, the lowest rate since the early 1970’s. The Australian equivalent of underemployment in the US also fell to the equal lowest level since the measure was introduced in the mid 90’s and sits at 6.9%

With such a low level of unemployment and underemployment, you would think that spare capacity would be fully absorbed and there would be strong upward pressure on wages as businesses compete for labour. Not so according to the data.

Wages in the US were actually unchanged in September with the annual pace of growth dropping back below 3%. This doesn’t look like a rogue number either. Wage growth has been slowing throughout the year after topping out an annual rate of 3.4% in February.

This shows just how hard it might be for the RBA to generate wage growth here in Australia. Currently the unemployment rate is sitting well above what is now considered full employment. Even if the RBA is successful in getting the unemployment rate down from its current level of 5.3% to the mid 4’s, there is no guarantee that wage growth will follow.

Matthew Dunshea

Client Relationship Manager