Daily Commentary BY THE CURVE TEAM –

Latest Employment Update Key to the Outlook

18th of July, 2018

The RBA has made it clear that the outlook for monetary policy hinges on employment outcomes which puts added focus on today’s data update for June.

Employment, along with growth and inflation, have long been the key data points that have driven monetary policy decisions.  Full employment is even part of the RBA’s mandate. With the RBA recently revising their assessment of full employment, it has thrust the month to month release from the ABS firmly into the spotlight.

Repeatedly the market has been expecting employment growth to slow in recent months and time and time again, it has beat expectations. This month the market is expecting employment growth to soften once again. Current expectations are for total jobs growth of 9,000 for the month with a dip in the participation rate to leave the unemployment rate at 5.2%.

This is important and today’s chart shows it. The RBA now sees the Non-Accelerating Inflation Rate of Unemployment as being closer to 4.5% than the previous estimate of 5%. This is something also worth noting ahead of the RBA’s next forecast update in their upcoming August Statement on Monetary Policy.

In their previous forecasts from the May statement, they were expecting unemployment to fall to 5%. Those forecasts also included the assumption that the cash rate would move in line with market pricing and be cut twice. It suggests that if their forecasts haven’t changed, more stimulus will be required to push unemployment down to 4.5% in order to generate wage growth and lift inflation back to the target band.

David Flanagan

Director - Interest Rate Markets