In a recent speech in Sydney, Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter highlighted that the labour market in Australia remains tight but is gradually moving towards balance. This comes as high interest rates are working to slow down demand in what is expected to be a mild downturn.
Despite conditions in the labour market being tighter than estimates for full employment, with strength in hours worked, underemployment, and participation being somewhat surprising, the unemployment rate has risen to 4.2% in July, moving away from last year's low of 3.5%. The RBA anticipates this trend to continue gradually as population growth outpaces employment gains and firms reduce hours worked.
According to Hunter, the recent easing in labour market conditions is similar to mild downturns in Australian history. However, there is a possibility that conditions may be tighter than expected, or the demand for labour could grow more strongly than anticipated.
The RBA has raised interest rates by 425 basis points to a 12-year high of 4.35% in an effort to curb inflation. Despite this, the labour market has remained resilient, with new jobs being created at a fast pace. This has led policymakers to rule out a rate cut this year, although markets are still pricing in an 84% probability of a cut in December as other major central banks ease policy.
Hunter also mentioned that Australia's participation rate has reached record highs, which is unusual compared to trends in peer economies. Factors contributing to this include a long-term increase in female participation and a rise in the number of employed individuals with multiple jobs. Additionally, employment growth has been supported by a rebound in migration, which has boosted both the supply and demand for labour.
There are indications that the easing in the labour market is starting to impact wage growth, which is expected to slow down further from its peak.
Analysis:
The Australian labour market is currently facing a period of tightening conditions, with the unemployment rate rising to 4.2% in July. The RBA has implemented a series of interest rate hikes to combat inflation, but the labour market has remained resilient, creating new jobs at a steady pace. Despite this, there are signs that the easing in the labour market is beginning to affect wage growth, which is expected to slow down in the future.
For investors and individuals, this information is crucial as it provides insights into the current state of the Australian economy and the potential impact on their finances. Understanding the dynamics of the labour market can help individuals make informed decisions about their investments, savings, and overall financial well-being.