BCEC Monthly Labour Market Update – September 2022

Growing signs the labour market has peaked

While there were minimal changes in the key labour force figures from August to September 2022, the latest data reinforce our assessment that the labour market has peaked for the current cycle and the unemployment rate will begin rising in the coming months.

The headline unemployment rate remained unchanged at 3.5 per cent; as did the national participation rate at 66.6 per cent. The September estimates show an increase of just 900 jobs across the country from August, marking a full quarter with no aggregate jobs growth.

A rise in the unemployment rate is inevitable unless jobs growth picks up, but other signals are consistent with labour demand easing. Advertised job vacancies fell sharply in September, accelerating a downward trend in the Internet Vacancy Index from its peak in June. The Australian Bureau of Statistics’ quarterly job vacancies series also fell in August, with the fall concentrated in private sector businesses.

It is worth keeping some perspective on the current state of affairs. These recent falls in key vacancies series are from record highs, and vacancies remain at very high levels in historical terms. The unemployment rate remains close to a 50-year low and the participation rate is 0.1 of a percentage point off its record high. So there is still substantial demand for labour in the economy and scope for falls in participation to limit rises in the unemployment rate as the labour market softens.

The policy response to pressure to rein in inflation remains the key risk. A gradual rise in the unemployment rate to settle within a range of 4.0 per cent to 4.5 percent in 2023 would be a positive outcome, but there is a very real danger that current and future interest rate rises in response to stubborn price inflation will eventually induce a much sharper downturn. Either way, the prospect of real wage growth returning to positive territory remains some way off into the future.

WA following suit or leading?

With signs of a slow-down in WA’s resource-reliant economy accumulating, the state also looks set for a downturn in the labour market. The Reserve Bank of Australia’s index of commodity prices for September was down 16 per cent, down from its June 2022 peak and recently released quarterly data from the ABS labour force survey show employment in WA’s mining sector falling almost 10 per cent in the three months to August 2022. Estimates at the industry level by state can be volatile, but other data on employment and advertised vacancies by occupation are consistent with a softening in the resources sector.

Western Australia saw a drop of 3,800 jobs in September, leaving total employment 5,200 jobs below its peak in May 2022. The State’s unemployment rate climbed to 3.4 per cent to be almost on par with the national rate of 3.5 per cent. Already advertised job vacancies are trending downward more rapidly in WA than for the nation as a whole. Much will depend on movements in the value of the Australian dollar, developments in the turbulent energy markets, and the impact of ongoing floods in the east as to whether WA leads or follows the rest of the country into what is becoming an increasingly likely downturn.