Elliot Clarke, an analyst at Westpac Banking Corporation explained that this week, the labour market has been centre stage, particularly in Australia.
Key Quotes:
“The data release of the week was the September labour force release for Australia.”
“While the monthly employment gain was uninspiring, the decline in the unemployment rate to 5.0% — historically seen as consistent with full employment — created plenty of interest.”
“The labour force offers up a great deal of detail, allowing many views to be taken, and many data points dismissed as noise. We argue that a holistic view needs to be taken, across components and time.”
“Abstracting from month to month volatility, employment growth is best considered strong at 2.3%yr. Being well above population growth, it is not surprising that the unemployment rate continues to trend lower.”
“Here however we caution on extrapolating the recent acceleration in the downtrend. Highlighting a need for careful assessment, the 0.2ppt drop in participation in the month of September that allowed the unemployment rate to reach 5.0% was a break from participation’s plateauing uptrend.”
“To our mind, the most likely outcome for the coming six months is a stabilisation in employment growth around 2.0%yr, the unemployment rate just above 5.0%, and the participation rate at the average of the past six months, 65.6%.”
“Clearly though, there is a risk that either employment growth sustains at the current level (2.3%yr rather than 2.0%yr) and/or participation edges lower again. Either of these outcomes, or a combination of the two, would result in the unemployment rate coming in at 5.0% or below.”
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