BDO Economics Partner Anders Magnusson has published a note on today’s unemployment rate:
“The latest labour market indicators reveal a mixed bag of trends that challenge classic economic principles. There is minimal risk of inflation fuelled by the labour market and the RBA safely retains its intended wins from near-full employment, yet the standard of living for many Australians is declining.
Job creation picked up in November, with 35,600 more jobs added compared to only 12,200 in October. We can still expect to see a labour market softening in December similar to the past two years, as more people exit the labour market, with a rebound typically occurring in February as new contracts commence.
The employment-to-population ratio has remained more or less stable since August, indicating that employment is keeping pace with population growth. The participation rate, while historically high, has also stabilised since July, and the underemployment rate is falling, suggesting fewer people are actively seeking more work. This is further supported by a stable unemployment rate since August with a slight decrease noticeable last month.
Steady indicators on the supply side and job advertisements continuing their decline through November suggest a balance between labour supply and demand. The wage increase observed in the September quarter, driven by the Fair Work Commission’s Annual Wage Review, has not led to significant inflationary pressures. Despite a 3.5% increase in the Wage Price Index (WPI) for the year, the Consumer Price Index (CPI) rose by only 2.8% over the same period, indicating modest real wage growth.
The RBA will remain vigilant, monitoring the impacts of government fiscal policies and nation-building projects to ensure inflation stays within the target range. While the labour market poses minimal inflation risk, the RBA’s cautious approach aims to prevent any potential rebounds in underlying inflation.
This labour market strength would typically occur alongside strong growth, but Australia’s productivity slowdown is preventing real and sustainable wage growth and improved living standards.”