This week we saw the central policy dilemma the Reserve Bank and government face as we approach the end of the year and the mid year economic update was laid out in the solid jobs data for October on Thursday.
Taken with weak inflation, the strong labour market is not impacting wages and there is no sign of any change in the offing.
In fact the strength of the jobs market stands as a tribute to economic management of the RBA, and to a lesser extent the Federal Government, but also to the infrastructure binge by the NSW and Victorian governments and the housing investment boom of the past three years.
But while hundreds of thousands of jobs have been created in the past year and a bit, the surge has not lifted wage rates (but could have supported them and stopped them falling further).
This week’s weak Wage Price Index for the three months to September simply continues to undermine the hopes of the government and the Reserve Bank that wages will start rising at a faster rate.
But you would have thought that the strongest jobs growth for 23 years and the lowest unemployment rate in more than four years might have had a palpable impact on wages by now. But the 2.0% rise in the year to September says otherwise, especially when it was unchanged from a revised 2.0% in the June quarter.
Yes the jobs report – especially the more accurate trend figures which smooth out the more volatile seasonally adjusted data (which the media and many business economists persist in using) supports, for another month, the RBA’s belief that the labour market remains strong.
All measures – such as hours worked, the participation rate, especially for women, the overwhelming preponderance of full time jobs being created, the employment to population ratio – confirm the continuing strength of the jobs market and the demand for labour – much of it in healthcare.
But inflation hasn’t moved (if anything it has weakened a touch and will fall further as the new weightings in the Consumer Price Index come into play from this quarter onwards) and with high levels of debt, household consumption has slowed noticeably.
The rebound in our terms of trade in the year to June 30 has left no discernible impact on wages, except perhaps to stop the Wage Price Index from weakening more than it did – it is down from 2.6% growth three years ago to 2% currently.
The National Australia Bank’s business conditions survey for October were at their strongest since the survey started 20 years ago. Even retail perked up a fraction. But the bank’s economists pointed to a weakening in forward orders as a suggestion that a slowdown could be ahead.
The trend figures again showed a much stronger performance. While the trend unemployment rate remained at 5.5% last month, the Australian Bureau of Statistics (ABS) said the 20,000 new jobs created showed the continued strength in employment growth in the Australian labour market.
The ABS said monthly trend full-time employment increased for the 13th straight month in October 2017. Full-time employment grew by a further 16,000 in October, while part-time employment increased by 4,000.
“Full-time employment has now increased by around 289,000 persons since October 2016, and makes up the majority of the 347,000 person net increase in employment over the period,” ABS Chief Economist for the ABS, Bruce Hockman, said. “Over the past year, trend employment increased by 2.9 per cent, which is above the average year-on-year growth over the past 20 years (1.9 per cent)."
In the year to October 347,000 new jobs were created, down from the 371,000 created in the year to September, but still ahead of the growth in the population. The ABS said the labour force increased by 335,100 persons (2.6%). in the past year. This rate of increase was above the rate of increase for the total Civilian Population aged 15 years and over (323,400 persons, or 1.6%).
The labour force participation rate remained at 65.2% (down to 65.1% in seasonally adjusted terms) for a second month, the highest it has been since April 2012.
The ABS said the trend monthly hours worked increased by 3.5 million hours (0.2%), with the annual figure also showing strong growth (3.1%, which was faster that the growth in new jobs of 2.9% and the population, meaning hours worked are growing).
“The trend participation rate for 15-64 year olds, which controls (in part) for the effects of an ageing population, increased by 0.1 percentage points to 77.7 per cent in October 2017 from a revised estimate of 77.6 per cent in September 2017.
"This is the highest rate recorded and indicates the 15-64 year old population is participating in the labour market at a record high level. In particular, for 15-64 year olds, the females participation rate has increased from 50.2 per cent when the series began in February 1978, to a high of 72.7 per cent in October 2017.
"Over the past year the trend employment to population ratio, which is a measure of how employed the population (aged 15 years and over) is, increased by 0.8 percentage points to 61.7 per cent, the highest it has been since August 2012. The male employment to population ratio was 66.9 per cent in October 2017 while the female employment to population ratio reached a record high of 56.6 per cent,” the ABS reported.
Normally a jobs report of this quality (discounting the smaller than forecast rise in the seasonally adjusted number of new jobs and the dip in the unemployment rate to 5.4% from 5.5%), and that for September, would have seen the Reserve Bank lift rates next month.
But most economists now see no rate rises until late 2018 at the earliest, or well into 2019. More months of weak retail sales, soft building approvals and little growth in wages will push rate rise prospects back deeper into 2019.
