We have updated our comprehensive chartpack on labour markets in Australia and New Zealand.

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Labour market outcomes in coming months will be key to central bank policy deliberations against a backdrop of rising and above-target inflation and the Middle East conflict.

For now, central banks will fret about inflation and inflation expectations, particularly those in economies with little spare capacity, including the RBA which we expect to tighten policy further in coming months.

Any signs of weakening labour market conditions, however, will provide central banks with some assurance that first-round inflationary effects of the conflict won’t leak into damaging second-round effects on inflation.

Historically, a rising unemployment rate has typically seen the RBA (and Fed) initially holding interest rates stable for a period of time before easing policy.

While rising inflation due to supply-side factors creates complexities for central banks, our view is that they will ultimately find it difficult to not act if unemployment rates persistently rise.

For the RBA, however, the jobless rate is clearly below that consistent with “full employment” and will need to rise to tame inflation.

For now, labour market conditions in Australia remain tight by historical standards and compared with most other advanced economies. While market-sector firms have lifted their hiring there is a risk that prolonged uncertainty will weigh on their appetite to take on more employees.

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In our previous two Compendiums we characterised the Australian labour market as being at a crossroad.

On the one hand it was becoming clearer that demand growth was strengthening and firms were reporting tighter capacity in the economy. In contrast, there were signs that the composition of employment growth had shifted away from being largely dependent on hiring in non-market industries, potentially creating an ‘air pocket’ in jobs growth.

Fast forward and the unemployment rate fell to just 4.1% in December and stayed there in January.

The bigger picture hasn’t changed.

Labour market conditions remain relatively tight, though we expect part of the recent decline in the jobless rate to unwind in coming months.

The recent decline in the unemployment rate has coincided with rising job advertising and a continuation of a high share of firms reporting that labour is difficult to find.

But employment growth has slowed and the share of working-age people in work in Australia has steadily declined over the past year.

As is often the case, the labour force participation rate has declined alongside falling employment propensity.

Much of the decline in labour force participation over the past 6-12 months has been accounted for by age groups 45+ years old. This may be consistent with many firms keeping a keen eye on labour cost growth and cutting - or hiring fewer - older, more expensive staff.

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In our previous Compendium we characterised the Australian labour market as being at a crossroad. That remains the case.

Labour market conditions remain relatively tight in an historical sense and compared with estimates of the NAIRU. Australia’s unemployment rate also remains low by global standards.

But employment growth has slowed materially and recent outcomes will be revised down a little further when population benchmarks are updated in the December labour force release.

Business surveys suggest that while there has been an increase in the share of Australian employers growing staff numbers this year, there has also been a higher share of employers cutting staff. Labour force data show that unemployment rates have risen the most for former workers in ‘white collar’ industries, particularly finance & insurance and professional services.

The share of the working-age population in a job has declined since peaking at the start of this year and labour market ‘outsiders’ continue to find it more difficult to find work than in recent years.

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The modest easing in Australia’s labour market conditions in recent months removed one hurdle for the RBA to continue gradually easing monetary policy in August.

But the labour market remains relatively tight in an historical sense and compared with prevailing conditions in several other economies.

Since the monthly labour force survey began in 1978, the unemployment rate has been lower than it is currently on 48 occasions (out of 570). But only 6 of those monthly observations were prior to 2021.

Very low rates of underemployment - particularly for females - also imply that there is relatively little additional labour supply that can come from squeezing the existing workforce harder.

It’s not all roses.

Despite relatively tight labour market conditions overall, people not in work continue to find it reasonably difficult to gain employment. That is, hiring has diminished, but firing has also remained low. This is also a feature of some other labour markets.

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The modest easing in Australia’s labour market conditions in recent months removed one hurdle for the RBA to continue gradually easing monetary policy in August.

But the labour market remains relatively tight in an historical sense and compared with prevailing conditions in several other economies.

Since the monthly labour force survey began in 1978, the unemployment rate has been lower than it is currently on 48 occasions (out of 570). But only 6 of those monthly observations were prior to 2021.

Very low rates of underemployment - particularly for females - also imply that there is relatively little additional labour supply that can come from squeezing the existing workforce harder.

It’s not all roses.

Despite relatively tight labour market conditions overall, people not in work continue to find it reasonably difficult to gain employment. That is, hiring has diminished, but firing has also remained low. This is also a feature of some other labour markets.

Read more

We have updated our comprehensive chartpack on labour markets in Australia and New Zealand.

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This update focuses on some of the insights contained in the detailed labour force data for Australia published in the mid-month of the quarter and the monthly “gross flows” figures.

The labour market remains tight overall and quite favourable for persons already in work. But digging beneath the surface shows that getting a job has continued to become more challenging for parts of the population.

Labour market conditions remain tight overall…

Australia’s unemployment rate has been little changed for most of the past year and in contrast to the gradual increase in the common tendency of jobless rates across many other developed economies.

An unemployment rate hovering around 4% and very low rates of underemployment clearly suggest that overall labour market conditions remain tight in Australia.

The share of firms reporting that labour availability is a significant constraint on output and the job vacancy rate also remain elevated despite being well below the respective peaks.

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This update focuses on some of the insights contained in the detailed labour force data for Australia published in the mid-month of the quarter and the monthly “gross flows” figures.

The labour market remains tight overall and quite favourable for persons already in work. But digging beneath the surface shows that getting a job has continued to become more challenging for parts of the population.

Labour market conditions remain tight overall…

Australia’s unemployment rate has been little changed for most of the past year and in contrast to the gradual increase in the common tendency of jobless rates across many other developed economies.

An unemployment rate hovering around 4% and very low rates of underemployment clearly suggest that overall labour market conditions remain tight in Australia.

The share of firms reporting that labour availability is a significant constraint on output and the job vacancy rate also remain elevated despite being well below the respective peaks.

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A key update in this edition is to the industry composition of jobs growth in Australia based on the quarterly Labour Account.1

In February, we wrote about the difficulties in fully explaining the ongoing strength in jobs growth in Australia despite strong growth in government spending - and its composition - clearly playing a significant role.

We flagged that “following a period of robust jobs growth, and weak labour productivity growth, we remain wary that jobs growth may eventually underwhelm despite the expected cyclical pick-up in (private) demand growth”.

The Labour Account now shows a clear slowing in aggregate and non-market sector jobs growth in Q1 and Q4 last year. The stalling in non-market sector jobs growth in Q1 is consistent with weakness in government consumption in the quarter as per the national accounts.

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Labour market conditions are clearly very different on either side of the Tasman.

New Zealand’s recession has resulted in almost a 2ppt rise in the unemployment rate and sharp slowing in wages growth. In contrast, Australia’s jobless rate has risen by just 0.6ppts and wages growth, while slower, is around average rates despite very weak productivity growth.

The skew in demand growth in Australia towards non-market - or government-aligned - industries has provided a strong support to employment growth and maintained relatively tight labour market conditions overall. Nonetheless, firms are increasingly reporting that labour availability is gradually improving.

Something that has been relatively common across economies is the different experiences of labour market ‘insiders’ (i.e. the employed) compared with ‘outsiders’ (those wanting work).

The share of workers remaining IN employment between labour force surveys is at, or close to, record highs in Australia, New Zealand and the United States.

But, the share of the unemployed and people outside the labour force moving into employment has fallen, particularly so in New Zealand.

The uncertainty caused by tariff and trade ructions is obviously casting a cloud over the economic outlook, including in Australia and New Zealand. Prior to this chaos, growth in both Antipodean economies had started to improve.

Indicators of labour demand in New Zealand have been showing signs of stabilising and jobs growth had turned slightly positive.

Labour demand in Australia appears to still be gradually slowing but the labour market remains unusually tight by global standards.

The attached labour market chartpack provides a comprehensive overview of both short-term developments and longer-term trends in Antipodean labour markets.

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