With the unemployment rate below 5% the Australian labour market is far from weak. However, the underlying softening in employment trends first seen last quarter are now clear, and this does hold important implications for where Australian interest rates and the market could be heading. According to the latest Australian jobs report:

  • There has been a net loss of 3,900 full time positions over the past six months, with 37,000 lost in the past three months.
  • Trend jobs growth has slowed to 1,800k per month, compared to an average 30,100 in 2010.
  • Growth in hours worked has slowed to 1.1%, down from an average rate of 3.2% in the 12 months to March 2011.
  • The slowing in jobs growth has been relatively broad based. Since the start of the year, net losses have been reported in New South Wales (-5,400) and Queensland (-2,200), with modest gains in Victoria (+23,100) and Western Australia (+15,300).

 This softening in jobs creation is consistent with other developments we are seeing in the Australian economy, including:

  •  The on-going and restrictive impact of last November’s 40bp lift in rates by the RBA.
  • Significant fiscal drag post the end of government stimulus spending.
  • The elevated AUD.
  • An overall weakening in demand growth as cost of living pressures and consumer conservatism increase.
  • Leading indicators on the labour market.

In conclusion, this latest jobs report builds on a series of softer data, which makes the RBA less likely to raise rates in the near term. This could be important for the market, as any rate relief could increase consumer and business confidence, encouraging more robust economic activity outside of the narrow base of the mining sector.

Marc Whittaker