Log in Open account
Australia
Aussie jobs data disappoint

Aussie jobs data disappoint

Macro

Summary:  Thursday's Australian labour force data delivered another blow for the RBA with unemployment remaining at 5.2% vs. an estimate of 5.1% for the month of May, well above the level needed to spur wage gains and inflationary pressures.

Again, as in April, the report wasn’t all bad; hiring remains robust and employment rose by 42,300 vs. 16,000 expected, although 39,800 jobs added were part-time, likely a reflection of roles added due to the federal election in May. This could mean some downside risk to next month’s labour force report. The participation rate which refers to the total number of people who are currently employed or in search of a job (the labour force) as a percentage of the working age population rose to 66%, a record high. But the increasing labour force size continues to outpace actual hiring with unemployment remaining at 5.2% in May, well above the level needed to spur wage gains and inflationary pressures.

Looking under the bonnet, substantial spare capacity remains an ongoing issue for the Reserve Bank of Australia, preventing material upward pressure on wages. This is especially problematic for overindebted Australians struggling to maintain household spending whilst battling a negative wealth effect as the property market slumps and economic growth wanes. The RBA has signalled a tighter labour market will be key to returning inflation to target, but currently the level of labour market slack will be a significant impediment to spurring wage gains. 
Underutilisation is a broader measure of spare capacity than the unemployment rate, including those unemployed and underemployed, and this remained at 13.7%. Underemployment (those employed but wanting to and available to work more hours), another measure of labour market slack, also rose from 8.5% to 8.6% in May, meaning more than one million people in Australia have work but want to work more hours. Almost 30% of 15–24 year old’s are underutilised at present, evident of a colossal policy failure by federal and state government.

Combine stagnant wage growth, labour market slack and an economy heavily reliant on private consumption and you have an ugly cocktail for sub-trend economic growth and underwhelming activity. Get ready for more rate cuts!

Given that the RBA’s focus has shifted to the labour market, yesterday's data was keenly watched. But a more important development this week was actually on Wednesday evening, when RBA assistant governor Luci Ellis whilst delivering a speech in Melbourne gave a significant update on the RBA’s outlook for the labour market. Ellis outlined that the RBA now estimatse the “non-accelerating inflation rate of unemployment” (NAIRU), which refers to a theoretical level of unemployment below which inflation would be expected to pick up, is now around 4.5% and could be lower. This highlights that the RBA is woefully behind the curve, something we have previously bemoaned, and will have to move to aggressively cut policy rates. Something that Ellis confirmed when she went on to say, “If Australia truly can have lower unemployment – sustainably – policy should be used to try to get there.”

Reading between the lines, this raises the prospect of further rate cuts. The RBA forecasts of a 5% unemployment rate in the May Statement of Monetary Policy are predicated upon two rate cuts and if unemployment now needs to fall below 4.5% in order to spur inflation further rate cuts will be inevitable. For those thinking the RBA will stop at 1%, think again. In this environment, as the domestic outlook remains dim and rates head to new record lows AUD downside will prevail.
Given that RBA’s communication strategy appears to be shifting with the outlook for policy being much more clearly articulated to market participants in speeches as opposed to post-meeting statements, Governor Lowe’s speech on Thursday next week on The Labour Market and Spare Capacity will likely be a key indicator of whether the RBA will follow up with a second rate cut in July or August and how aggressively the central bank will move to meet their targets. 

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
    Read full article
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

    Read full article
  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
    Read full article
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
    Read full article
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

    Read full article
  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
    Read full article
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
    Read full article
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
    Read full article
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
    Read full article
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
    Read full article
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia
Products & pricing
Asset Management
    Platforms
    Accounts & service
    General
    Other
    Legal

    Trading can result in losses. Please ensure you understand the risks.

    The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

    Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

    Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

    Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

    The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

    Please click here to view our full disclaimer.