The labour market started 2018 just as it ended 2017, with employment continuing to climb at a healthy clip, but the fall in hours worked to a record low will offset some of the boost to household incomes, explains Paul Dales, Chief Australia & New Zealand Economist at Capital Economics.
“And the unemployment rate needs to fall much further before wage growth rises.”
“The 16,000 rise in employment in January was broadly in line with the consensus forecast of 15,000 and marked the 16th consecutive increase. Employment growth will probably slow this year from the current annual growth rate of 3.3% to the 2.0% or so touted by most other indicators. But there is little reason to expect a much more severe slowdown.”
“We are not particularly concerned by the rise in employment in January being driven by a 65,900 leap in part-time employment while full-time employment fell by 49,800. Over the past year, full-time jobs explain over 70% of the total 400,000 increase in employment.”
“We are, however, more worried by the falls in hours worked. The 1.4% m/m drop in total hours worked was the second decline in a row. And the 1.5% m/m drop took the average number of hours worked per employee per week to a new record low of 31.7. Employees are on average working 2.7% fewer hours than a year ago. That will limit the boost to household incomes from rising employment and it is consistent with other indications that there is still plenty of capacity in the labour market.”
“Thanks to a smaller 8,100 rise in the labour force, the unemployment rate fell back from 5.6% to 5.5%. Apart from the occasional blip up or down, it has been broadly stable for six months. It will probably edge down this year, but spare capacity elsewhere means it would have to fall well below 5.0% to generate a meaningful rise in wage and price inflation.”
“So while the continued strength of the labour market will provide at least some support to income and consumption growth this year, without much more wage inflation the RBA isn’t going to raise interest rates. We expect the RBA will keep interest rates at 1.5% until the second half of 2019.”
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