BCEC Monthly Labour Market Update – October 2023
– Inflation and interest rates to stay high for longer –
– Labour market stubbornly resilient, as jobs grow by 55,000 nationally –
– Real wages to keep falling in coming quarters –
Jobs data in line with revised expectations
A lot has happened since our last MLMU. The September quarter CPI came in showing consumer prices up by 1.2 per cent for the quarter and 5.4 per cent over the year; the Reserve Bank hiked interest rates by another 25 basis points the day Without a Fight won the Melbourne Cup and released its Quarterly Statement on Monetary Policy later that week; and the Wage Price Index, another key gauge of inflation, came out just last week.
The sobering message from the month’s developments is to expect inflation and interest rates to stay high for longer than previously expected, and for real wages to keep falling. In its Quarterly Statement on Monetary policy, the RBA noted that economic growth has been below trend but still stronger than expected and ‘conditions in the labour market have eased but they remain tight.’ That is to say, tightening monetary policy is not working as quickly as anticipated to slow the economy and ease inflation.
The October labour force figures fell in line with that revised outlook. After employment contracted marginally in September, it rebounded by a very healthy 55,000 jobs this month, with a rise in the participation rate pushing the unemployment rate up by 0.1ppt to 3.7 per cent. The participation rate for women hit a further record high at 62.8 per cent. While part-time jobs accounted for most of the growth last month, full-time employment also grew at a solid 0.2 per cent. Despite the working-age population continuing to expand by around 55,000 people per month, there is little sign yet of the unemployment rate rising towards 4.5 per cent as per the RBA’s script.
The Federal Government has been keen to flag the 1.3 per cent rise in the Wage Price Index (WPI) as the highest quarterly increase in wages since the series began in 1997. However, that rise can be primarily attributed to award rate indexation coming into effect at the beginning of July, stemming from the Fair Work Commission’s annual wage review. By and large, the Commission tends to increase award wages in line with inflation, so this is simply putting a positive spin on the fact that leading up to the 2023 wage decision we had the highest inflation rate since the WPI series began.
For the September quarter, WPI growth did eclipse CPI growth, so on average real wages increased marginally for the quarter (0.1 per cent), but are down 1.3 per cent over the year. There’ll be no wage indexation in the coming quarters, but plenty of inflation in the pipeline. A concerning feature of the September CPI data that seems to have received little attention was the rise in electricity prices. Electricity prices increased by 4.2 per cent in the quarter, but the ABS estimates they would have increased by 18.6 per cent without rebates from the Energy Bill Relief Fund.
Rebates will also suppress electricity prices for households in the December quarter, but it’s just delaying the inevitable. We estimate the headline CPI will be boosted by around 0.5 of a percentage point by ‘deferred’ inflation from electricity prices over the coming quarters, on top of underlying inflation.
The wild, wild west
It’s hard to get a handle on what’s going on in the Western Australian labour market at the moment. The unemployment rate has been particularly volatile. It fell by 0.5ppt in September to equal NSW with the lowest unemployment rate of all the states and territories at 3.3 per cent. In November it jumped back up by 0.5ppt. The volatility can be attributed to estimates for men: the male unemployment rate dropped 0.8ppt in September and leapt back up by 0.9ppt to 4.0 per cent in November. In contrast, WA’s female unemployment rate remained unmoved at 3.3 per cent from August to November.
The swings in the unemployment rate seem to stem from ABS estimates of the male participation rate, which suggest an exodus of men from the WA labour market in September only to return this month. Male and female employment have both grown strongly over the last 3 months, but the estimates suggest all that growth has been in part-time jobs for men, and mainly in full-time jobs for women. WA vacancy levels remain near record highs, with a growing gap between it and the other states as vacancies around the rest of the country begin to decline. When the dust settles, we expect the WA unemployment rate to average below 4 per cent for some time yet.