Garry Shilson-Josling, AAP Economist
(Australian Associated Press)
The Reserve Bank is cautiously optimistic about the jobs outlook, despite the slow economy.
In the minutes of its latest monetary policy meeting, the RBA this week said that the economic indicators suggested the jobless rate would be steady or possibly even fall slightly in the months ahead.
And, while the RBA has good reason to be optimistic, that optimism should be combined with caution.
There’s no doubt the economy is slow, expanding at less than two thirds of its normal pace over the the past year.
Ordinarily that would mean employment growth was too weak to stop the unemployment rate from rising as the population grows.
But, after heading higher for over two years, unemployment has been flat at just over six per cent for over a year now.
There are plenty of plausible explanations for that – including the economy’s switch to more labour-intensive sectors now the resource investment boom is fading, employment growth being overestimated or GDP growth underestimated.
Whatever the explanation, it’s clear the economy is generating enough jobs to cap the jobless rate, at least for the time being.
And some useful indicators are pointing in the right direction.
Both the ANZ’s monthly count of job ads and the Department of Employment’s Internet Vacancies Index have been rising since bottoming out in late 2013.
So has the quarterly measure of job vacancies compiled by the Australian Bureau of Statistics.
But it may not all be smooth sailing ahead.
Last week, Westpac economist Justin Smirk said the Job Index compiled by him and his colleagues from a range of business surveys of employment activity pointed to a slowdown, in jobs growth in the coming few months.
“The index is suggesting that the pace could slow to something under 1.5 per cent per year by the end of the year, but that this would be just a temporary blip,” he said.
That would imply very slow growth over the final three months of this year.
Another forward-looking measure is the Department of Employment’s leading indicator of employment, put together from a diverse set of data from interest rates to consumer sentiment and Chinese manufacturing activity.
The latest acceleration in employment growth that began late last year and stopped the unemployment rate rising was signalled by a turnaround in the leading indicator just over two years earlier.
But the leading indicator has since peaked, topping out early last year, and points to a much slower pace of jobs growth before long, consistent with Westpac’s index.
So the good times, such as they are, may soon be interrupted.
The fall in employment reported last week by the ABS may even mark the turning point.
And, while the labour market’s resilience may validate the central bank’s optimism over the short term, in line with the indicator of job vacancies, the leading indicators warn that the optimism should be seasoned with a good pinch of caution.