Australia: Employment boom, wages next? - TDS
Analysts at TDS explain that it was another Australian headline jobs beat vs consensus, with full-time employment and hours worked powering ahead as headline employment rose by another +19.8k in September, with the outsized employment beat for August barely touched at +53k. In addition, the unemployment rate stepped down to 5.5% as the participation rate remained unchanged at 65.2%, they further add.
Key Quotes
“The acceleration in trend full-time jobs and hours worked at the expense of part-time has been a welcome theme all year. This is the mirror image of the weak composition that prevailed in 2016, where all net jobs created were part-time, skewed towards males. Those weak trends sparked the “spare capacity” concerns of the then newly minted RBA Governor Lowe. Surely he must be convinced by now that the labour market is more robust by the day!”
“Annual employment growth jumped to 3.1%/yr, boosted by base effects of a negative September 2016 report. We see the NAB net employment balance as being more forward looking than the ANZ and the skilled vacancy series, and suggests that employment growth can be comfortably tracking between 2½-2¾% into mid-2018.”
“Implications
- This employment report confirms that 2017 is the year of strong labour market dynamics. The next step in the Phillip’s curve cycle is higher wages growth, in turn spurring higher core inflation. RBA Governor Lowe’s speech in July first explained the policy dilemma of using monetary policy to mitigate the flat(ter) Phillips curve with high and rising household debt, as it sparks financial stability risks.
- Our (very) long-held view is that we expect wage inflation to pick up towards 2½%/yr (Q3 released 15 Nov) not only via minimum wages but also via further improvement in wages in the cyclical industries (manufacturing, construction, etc).
- Our base case remains for +25bp in May 2018 unless wages and CPI materially surprise to the upside (we look for core inflation to reach 2%/yr next week). OIS at present is only 33% priced for a rate hike in May 2018.”