Markets in Review: A jobs rush

• Australia’s unemployment rate hit a six-year low in September, falling to 5 per cent on a seasonally-adjusted basis, and 5.2 per cent on a trend basis. This smashed expectations, and beat even the most optimistic estimate of 5.1 per cent.

Source: Reuters

• The economic bears point to a fall in the participation rate to explain the fall in unemployment. This is a reasonable argument to make for the month, but you can’t argue with the trend. Australia has been, and currently is, experiencing an employment boom.

• Since April, the unemployment rate has fallen 30 basis points on trend basis. The RBA and government estimate for Australia’s unemployment rate for December is 5.5 per cent, a figure which now appears highly unlikely. Expect to see estimates being reconfigured lower as soon as next week, when the Statement of Monetary Policy is due. This should serve to strengthen the RBA’s reasonably optimistic view of the world. The question is: will it lead to wage growth?

• The signals suggest that it will. Underemployment and underutilisation have fallen to five and a half-year lows, and continue to fall at a solid rate. This means the slack that has long kept wages depressed is finally breaking down.

• This data – combined with the stable and elevated level of participation (female participation is at a record), the employment sub-sectors from Australia’s GDP, Purchasing Managers Indices (PMIs), business confidence and consumer confidence – indicates that labour demand is booming. There is every reason to believe the unemployment rate will begin with the number four in the coming year, and wages should therefore move as well.

• The RBA views it this way too. Deputy Governor Guy Debelle gave a speech at the 10^th Annual Citi Australia New Zealand Investment Conference, in which he summed up the employment situation as follows:

Employment has, “grown strongly over the past year”, participation is, “close to its highest level on record”, and the unemployment rate, “declined to be at a six-year low”, and, ‘’[was] reasonably evenly distributed across pay levels”.

He also said that, “movements in the unemployment rate remain the dominant driver of movements in the broader underutilisation rate”, and that the unemployment rate remains, “the most useful summary indicator of the state of the labour market”.