Despite strong job creation, spare capacity in the labour market has started to rise. The unemployment rate has edged higher and is currently 5.3%, up from a recent low of 4.9%. Importantly, this is significantly higher than the RBA’s revised definition of full employment, of 4.5%.
Moreover, underemployment and underutilisation have both edged upwards in recent months to 8.5% and 13.8% respectively. This means that significant numbers of Australians are working fewer hours than they want to be.
Leading indicators of jobs growths, such as job vacancies are also trending downwards. This was reinforced by the ANZ job ads index which is 12.6% lower today than this time last year.
These indicators, as well NAB’s capacity utilisation and profitability indices, and the fact that the labour market tends to lag economic growth, suggest that jobs growth may slow in the period ahead. , Indeed, the economy lost 19,000 jobs in October (the most recent labour market data we have), the first monthly net job loss since May 2018.
If jobs continue to be lost and spare capacity remains, then unemployment may continue to move further away from the RBA’s target.
The labour market is important for wages and inflation but also for consumer confidence and as a result consumption (almost 60% of the Australian economy). An individuals response to low wage growth and record indebtedness is very different if there is job insecurity.