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Labour market even tighter than Monetary policy

How many rate rises have we had from the Reserve Bank this year and the Australian labour market is still at its tightest in decades?

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The Reserve Bank has boosted the cash rate to 3.10% from virtually zero in May when it started tightening – including four 0.5% rises in a row – and the Australian jobs market has improved, not gone backwards as many economists and the central bank, plus governments had been fearing.

Australian Bureau of Statistics data showed that the jobless rate was 3.9% in May when the first increase of 0.25% was made but on Thursday it clocked in at an unchanged 3.4% with 64,000 new jobs created in November, 7,000 extra people unemployed and the participation rate back to an all-time high.

Despite all those rate rises, the labour market is heading for one of its strongest calendar years – the jobless rate ended 2022 at 4.2% and around 466,000 more people have been employed from the end of December, 2022 to last month.

The number of people unemployed has also fallen sharply – down more than 150,000 in the same period.

Demand for labour was spread across full and part time work (indicating that the rise in new jobs just didn’t flow from part time workers employed for the late November-Christmas sales period).

The ABS said full-time employment rose 34,200 to 9.601 million people and part-time employment increased by 29,800 to 4.167 million.

The participation rate rose to 66.8%, the record level it reached in June this year, the ABS’s head of labour statistics Bjorn Jarvis said.

“It was 1 percentage point higher than before the pandemic,” Jarvis said in Thursday’s statement. “The record high participation rate continues to show that it is a tight labour market, especially when coupled with very low unemployment.”

The underemployment rate – the share of people working fewer hours than they would like – fell 0.1 percentage points to 5.8%, now 2.9 percentage points below its pre-pandemic level.

Covid is still with us though, With the latest wave accelerating in November in most states, there was a sharp rise the number of people reporting ill and a small fall in hours worked, according to the ABS.

“In November, we saw the number of people working reduced hours due to illness increasing by 50,000, back over half a million people (520,000), which is still around a third higher than we usually see at this time of the year,” Mr Jarvis said.

That saw seasonally adjusted monthly hours worked dip 0.4% in November, following the strong 2.4% increase in October.

The real trick for economists, analysts and investors is keeping a close eye on the state of the jobs market in 2023 and spotting and understanding when the eventual cracks start appearing.

The 2022 rate rises from the RBA and another next February (when we will have inflation data for the month of December and the December quarter) will pressure consumer spending and demand and that’s where the cracks in the labour market will start appearing.

Housing has already seen a sharp fall in prices which ran too high thanks to the ultra-loose monetary policy and low interest rates. The hot jobs market will feel similar pressures next year.

Once rates started tightening, demand started dying and despite the best attempts of banks and other financial groups to get people to buy or switch, lending is down, building approvals are down and still weakening.

The slide in the labour market, when it comes, could be steeper than it should be if the RBA tightens monetary policy too far. That is always a judgement made with hindsight but the tightness of employment suggests a rapid slide if the break happens.

Employment is a lagging indicator – that’s why the jobs market has seemingly withstood the impact of this year’s rate rises – but it catches up to reality in a downturn, then takes months, if not years to recover and lags any rebound in activity.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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