Australia: Removal of excess slack in the labour market - Westpac

Justin Smirk, Research Analyst at Westpac, suggests that there has been some removal of excess slack in the Australian labour market, as measured by falling unemployment and modest decline in the broader measures of labour market utilisation.

Key Quotes

“In the last year there was also the larger than usual boost from the annual lift in the minimum wage. And yet we are still waiting for a meaningful pickup in wage inflation.”

“Total hourly wages ex bonuses increased 0.6% in Q2, his time on market and Westpac expectations, lifting the annual rate to 2.1%yr from 2.0%yr (was 2.1%yr).”

“Private sector wages grew 0.5% lifting the annual rate slightly to 2.1%yr. Public sector wages grew 0.6% holding the annual rate at 2.4%yr. The annual rate of public sector wage inflation has been 2.4%yr since 2017 Q1.”

“Last year there was a clear improvement in labour market conditions as measured by total employment, full-time employment, hours worked, unemployment and even underemployment. From a peak of 5.8% March 2017 unemployment has fallen to 5.4% in June 2018 and it clearly has its eye on 5.3%.”

“In addition, the various business surveys suggest that Australian firms are starting to find it hard to recruit labour. In this situation firms would have, in the past, started to bid up wages. So far we are yet to see any of this at a national level.”

“Manufacturing wages were starting to lift but in Q1 they eased back to 2.2%yr from 2.3%yr in 2017 Q4.”

“The recent fall in unemployment, and tightening in labour market conditions via firms reporting labour is getting harder to find, suggests we should be looking for a pick-up in wage inflation.”