Another Strong Jobs Report In Australia But Unemployment Stuck At 5.4%

Originally published by AMP Capital

• Employment rose in Australia by 50,900 in June which was well above market expectations for a 16,500 gain. This saw annual jobs growth bounce back to 2.8% with a very strong 339,000 new jobs created over the last year.

• Unemployment was unchanged at 5.4%.

• Jobs growth last month was strongest in NSW (+27,300) and Queensland (+14,800), went backwards in Victoria (-6500) and SA (-1300) with moderate growth in WA (+2900) and Tasmania (+2100).

The good news is that jobs growth has bounced back after several softer months and the gain in jobs in June was high quality with 41,000 new full time jobs. Reflecting this growth in hours worked was also strong. However, unemployment is remaining relatively high because employment growth has just been strong enough to absorb new entrants to the workforce driven by growth in the working age population of 317,000 over the last year and participation also trending higher in response to jobs growth. With jobs growth not cutting much into the 13.9% pool of unemployed and underemployed workers its hard to see wages growth picking up much any time soon.

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Solid jobs growth is providing a source of support for total household income in the economy and hence consumer spending, but its being offset by ongoing soft wages growth and along with falling home prices the outlook for consumer spending is likely to remain constrained.

Our forward looking Jobs Leading Indicator – based on job vacancies, job ads and hiring plans - continues to point to solid employment growth but it has softened a bit in recent months reflecting slow growth in job ads and hiring plans.

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Implications for monetary policy

Strong employment growth is good news but with the unemployment rate stuck at 5.4% and given the monthly volatility seen in the jobs numbers, the June jobs report is not enough to push the RBA to a rate hike. We remain of the view that with mixed readings on economic growth, low wages growth and inflation and falling home prices in Sydney and Melbourne an RBA rate hike is unlikely until 2020 at the earliest, and that the next move being a cut cannot be ruled out. So while the Australian dollar bounced $US0.40 on the stronger than expected jobs data its unlikely to be sustained.