BCEC Monthly Labour Market Update – December 2023
— Volatile employment figures show 65,100 jobs shed in December. —
— Other indicators suggest this overstates the rate at which the labour market is weakening. —
— Expect interest rates to stay on hold when the Reserve Bank Board meets in early February. —
December employment estimates deliver anticipated ‘correction’
This month’s labour force survey shows full-time employment plummeting by 106,600 jobs, partially offset by an increase of 41,400 part-time jobs. Despite the job losses, falling participation kept the unemployment rate constant at 3.9 per cent and the number of unemployed people actually fell. The fall in employment was anticipated in last month’s MLMU following unrealistically strong November employment figures, and we remain of the view that it is primarily a statistical correction rather than evidence of any longer term labour market downturn.
Estimates of the participation rate seem to be driving employment figures lately, with NSW playing a major role. The surprise 61,500 jump in jobs in November’s figures was largely due to an estimated increase of 52,800 jobs in NSW along with a 0.6ppt increase in the state’s participation rate. In December, the NSW participation rate dropped by 0.6ppt, and employment fell by 35,400 – again accounting for most of the job losses nationally. The two other states recording significant job losses in December – SA down 12,400 jobs and VIC down 9,600 jobs – also registered falling participation rates, by 0.9ppt and 0.3ppt, respectively.
The same pattern is apparent at the national level. December’s fall in employment came alongside a 0.4ppt fall in the national participation rate. Interestingly, the December labour force figures contained revisions that suggested an even bigger jump in November in the number of jobs (+72,600) and the participation rate (67.3%) than the original figures.
This all reinforces our warning not to read too much into December’s fall in job numbers and emphasises the need to look more broadly at other indicators that suggest resilience in the labour market. The Internet Vacancy Index (IVI) rose marginally in December, ending a run of four monthly falls. The ABS also recently released its Job Vacancy series, which, conceptually, provides an estimate of the full count of vacancies available to be filled in the economy, whereas the IVI only counts vacancies advertised on the main online platforms. This allows us to calculate the ratio of the number of unemployed people to vacancies in the economy as a measure of labour market tightness (see Figure 6). At just 1.4 unemployed persons per vacancy nationally, and a similar ratio for each state, demand in the labour market remains strong relative to supply. While those figures are for November, the IVI series increased in December while the number of unemployed persons fell.
The working-age population continues to grow by almost 50,000 persons per month, equal to an annualised rate of 4.9 per cent, around 50 per cent above the long-run rate of growth. Despite this, the unemployment rate remains stubbornly below 4 per cent. Vacancies are trending down, but both the IVI and ABS series remain very high by historical standards. These are not signs of a weak labour market.
Employment figures unlikely to affect interest rate decision
The Reserve Bank of Australia Board will meet for the first time for 2024 on 5 February, with a monetary policy announcement scheduled a day later. The RBA is unlikely to cut interest rates without clear signs of moderating inflation and a weakening labour market: Treasury’s Mid-Year Economic and Fiscal Outlook projects inflation to return to the upper end of the RBA’s 2-3 per cent target range in 2024-25, with the unemployment rate rising to 4.25 per cent in the middle of 2024 and to 4.5 per cent for 2024-25. Monthly CPI estimates did show annual inflation moderating from 4.9 per cent in November to 4.3 per cent in December 2023. However, the critical piece of information will be the quarterly CPI figure for December 2023, due for release on 31 January.
Even with a larger than expected decline in the December quarter CPI, the RBA is unlikely to move following the February meeting. A depreciation in the Australian dollar since the end of last year, waterfront industrial unrest and unwinding of the effect of rebates for electricity bill relief all add to inflationary pressures in the coming months. While most analysts are debating the timing of the first rate cut, it may be too early yet to rule out a further increase if inflation does not moderate quickly enough.