Australia: Spectacular employment growth – NAB

Another healthy rise in Australian employment in December completed a year of strong labour market improvement in 2017, explains the research team at NAB.

Key Quotes

“Employment grew by 35k in December in seasonally adjusted terms, the 15th consecutive month of increases. Over 2017, employment grew by a robust 403k, 303k of which full time employment. The strong employment outcomes saw another rise in the participation rate, overall seeing the unemployment rate up slightly to 5.5%, from 5.4% in November.”

“The official trend employment growth was 25k per month. The NAB Business Survey employment index, on the other hand, has not experienced the same wild swings in recent years, and tends to suggest the official figures may be currently overstating the degree of job creation. The NAB employment index implies employment growth of a little less than 300K at present, and a slowdown to around 240K per annum over the next 6 months, or a monthly pace of around 20K per month. This should still be sufficient to see the unemployment rate inch downwards, assuming no further large increase in the participation rate. We currently forecast the unemployment rate to gradually drift lower in 2018, as the labour market continues to improve, to around 5.1% by the end of the year.”

“Trend employment growth was positive across all states and territories apart from SA. NSW has been driving most of the employment growth, while the strong growth in VIC has slowed down somewhat. Encouragingly, WA has been reporting positive employment growth, suggesting the worst of the mining job cuts is now behind us. According to the NAB survey, the employment conditions indices have been trending down since the second half of 2017, albeit remaining at positive levels, apart from in WA. The NAB survey also suggests NSW will be leading the nation in jobs creation while VIC has fallen below national average. The NAB Survey has also seen more firms report it is more difficult to find suitable labour, a clear trend since around mid 2015.”

“Despite declining during 2017, the underemployment rate remained high at 8.3%, above historical average. While there is still a fair degree of labour market slack, there might be a deficit of workers with the right skills to match employers’ needs.”

“Perhaps due to the remaining slack in the labour market, wages growth has been subdued. The NAB survey labour costs measure rose slightly in January, to 0.9% (a quarterly rate, previously 0.8%) and has recently trended upwards. As a labour cost measure however, this is being supported by employment growth – a proxy which adjusts for this suggests there has not been an upward trend recently, but that wages growth is stronger than official measures suggest. Overall we expect to see wage growth eventually pick up as the labour market improves further.”