Jobs are on song as the pressure steps up

The Australian jobs market remains in good shape. Employment rose 50,100 in April after falling 31,200 in March and rising 71,700 in February. In the first four months of 2013, employment has risen by 102,900 or an average of just under 26,000 per month. The unemployment rate edged down to 5.5 per cent, from 5.6 per cent, in April but remains 0.5 per cent above the level of a year earlier.

With the ANZ job advertisement series edging lower and the employment intention plans in the NAB and Dun and Bradstreet surveys of business also underwhelming, it remains likely that labour market conditions will remain problematic for a little longer. By that, I mean the unemployment rate is likely to stay a little higher than desirable, which is why the Reserve Bank has no fear in setting monetary policy on an expansionary path. Monthly volatility aside, there remains a risk that in the months ahead the unemployment rate will creep a little higher.

In terms of some specifics, in April, there were 34,400 full-time jobs created, while part-time employment jumped 15,700. In the 12 months to April, there has been an increase of 164,100 jobs, of which 96,200 were full-time and 68,000 were part-time. Aggregate hours worked rose 0.7 per cent in April to be 0.8 per cent above the level a year ago.

The labour force data fit the general theme of recent economic news. The economy is doing well in real terms, with growth strong enough to be generating decent levels of employment, containing the rise in the unemployment rate. Some parts of the economy are going through a bit of a cyclical downturn but others, it is clear, remain buoyant.

The action plan, or hope from policymakers, is that as the mining investment boom tapers off, the focus of activity goes to the domestic economy including construction, services and retail spending.

The fact that the Reserve Bank has cut interest rates aggressively and that these lower borrowing costs are flowing on to the household and business sectors should ensure more favourable economic and labour market conditions in the medium term. 

Against this remains the heavy weight of sluggish global economic conditions, softening commodity prices (and the terms of trade) and the persistently high and overvalued Australian dollar (see today's New pressures for the almighty Australian dollar, May 9). These are unlikely to change soon and still are cause for concern for policymakers.

While the job numbers make a June rate cut unlikely, the low inflation climate will leave the door open for lower rates in the months ahead. But with the trend rise in the unemployment rate reasonably well contained – for now, at least – the Reserve Bank may want to wait many months before adjusting rates any lower.