Australia’s unemployment rate rose slightly in March, as 32,000 people found employment and the pool of unemployed people increased by 3,000.
The unemployment rate lifted to 4.1 per cent, up from 4 per cent, in seasonally adjusted terms.
In trend terms – which smooths out seasonal fluctuations in the data – the unemployment rate remained steady at 4 per cent in March, for the fifth month in a row.
But economists say Australia’s job market has cooled down noticeably in recent months, with far fewer jobs being added compared to this time last year.
And they say even though employers are still reporting high-than-normal vacancies that need to be filled, that hasn’t translated into stronger employment growth this year.
Callam Pickering, Asia-Pacific economist at global job site Indeed, says geopolitical and economic uncertainty could weigh heavily on the jobs market this year and that will be playing on the Reserve Bank’s mind.
“Carnage in financial markets, high levels of economic uncertainty and a suddenly weaker economic outlook makes another rate cut in May all but certain,” he said.
“Soft employment growth over the past few months will only give the RBA Board more confidence that this is the right path to take.
“While acknowledging that the Trump administration is nothing if not unpredictable, the global economic environment has shifted in such a fashion that I now expect the RBA to deliver rate cuts in each of their next three meetings, with a possibility that they deliver a super-sized cut in May,” he said.
The slowdown in employment growth
The Australian Bureau of Statistics (ABS) says hours worked decreased by 0.3 per cent in March, falling for the second month in a row, despite the growth in employment.
“A higher than usual number of people reported working reduced hours this month due to bad weather, coinciding with ex-Tropical Cyclone Alfred and other major weather events in New South Wales and Queensland,” ABS head of labour statistics Sean Crick said.
Mr Pickering said the slow-down in employment growth this year was somewhat-at-odds with the ongoing strength in forward looking indicators of labour demand, such as job vacancies and job advertisements.
He said most labour market metrics remained quite healthy, with some even improving.
For example, the underemployment rate — the share of Australians with a job who would prefer more hours — is currently sitting at its lowest level since August 2008.
However, he said despite employment increasing by 32,000 people in March, that followed a decline in employment of 57,000 in February, which averages out to very little employment growth across the March quarter.
“Over the first three months of the year, Australian employment has increased by just 6,500 people,” Mr Pickering said.
“That’s a fair slowdown from last year when the job market was regularly adding 100,000 people or more a quarter.
“Given that, it’s perhaps surprising that Australia’s unemployment rate hasn’t increased. The reason though is quite simple: Australia’s participation rate has declined by 0.5 percentage points over the past two months, effectively absorbing the impact of low employment growth.
“If the participation rate had held steady, at its record high from January, Australia’s unemployment rate would have jumped to 4.7 per cent,” he said.
The participation rate was a record-high 67.2 per cent in January, but it slipped noticeably to 66.7 per cent in February and then rose slightly to 66.8 per cent in March.
Will the debate about ‘full employment’ be settled soon?
Citi economists said that noticeable decline in the participation rate within a short period of time was perplexing, and if it rebounded in coming months it could see the unemployment rate rising.
“The ABS noted last month that [the decline] was driven by the older-aged cohort not returning to the workforce,” Faraz Syed and Josh Williamson said.
“But there could still be some job-attachment that might see the labour force participation rate rebound in coming months.
“If this does occur, then job-growth will likely need to increase to around 45,000 — 50,000 over those months to keep the unemployment rate unchanged,” they said.
They also think the labour market is still tight overall, with conditions suggesting the economy was still experiencing levels of employment that were stronger than the RBA’s estimate of full employment.
However, the head of Australian economics at Commonwealth Bank, Gareth Aird, has offered a different perspective, saying the current level for the unemployment rate seems to be around where the true level of “full employment” actually is.
He said NAB’s March quarter business survey, released today, shows that labour as a significant constraint on output fell notably in the quarter.
He said that phenomenon is consistent with slowing wages growth in the private sector.
“And in out view provides further evidence that the NAIRU (non-accelerating inflation rate of employment) is likely to be around 4 per cent (i.e. essentially the current level of the unemployment rate),” he wrote.
“If we are correct on our estimate of NAIRU then Australia will be able to run a lower unemployment rate than is currently assumed by the RBA that is consistent with inflation sustainability around the mid-point of the target band.
“The RBA’s models continue to imply that the NAIRU is closer to 4.5 per cent. But the RBA is very much open minded to the idea that the NAIRU could be lower than its working assumption.
“Ultimately inflation and wages outcomes from here will help to settle the conjecture around what level of unemployment Australia can run that is consistent with the inflation target,” he said.
