“The Labour Force for October showed a rise in employment of 29,700, well above the median market forecast of +20K (NAB had +30K), continuing the recent pattern of analysts underestimating the strength of labour demand. The rise of 29.7K came after a rise in Sep of 49.6K, so two strong months of labour demand in a row
Unemployment rose to a rate of 5.4%, from 5.1% (although, this overstates the actual increase of 0.2% due to statistical rounding: Sep was 5.386% and Oct was 5.146%)…
The reason why the unemployment rate rose, despite strong jobs growth, was a rise in the Participation Rate to 65.9%, from 65.6%. This represents an all time record high for the participation rate for the monthly series going back to 1978. A higher participation rate represents an ‘encouraged worker’ effect, with a greater proportion of the working age population looking for work, an effective increase in the supply of labour…
For the RBA, the key measure in this report is the unemployment rate because it indicates the ‘tightness’ of the labour market. If the labour market tightens too rapidly, this can lead to a wages break out and higher inflation. Today we have seen strong jobs growth pretty much matched by a boost to the supply of labour and consequently, no further tightening of the labour market…
From a longer run perspective, the record high participation rate is great news as it is one of the changes the economy needs to offset the aging of the population. This is one of Ken Henry’s three Ps to overcome population ageing: Productivity, Population and Participation
To conclude a word of caution. The trend unemployment rate was 5.2% in Oct, where it has been since May, down from a peak of 5.7% a year ago. Earlier in the week, the Treasury’s Mid Year Economic and Fiscal Outlook nominated a range of 4.5% to 5.0% for the NAIRU, the full employment level for the economy. Hence, at 5.2%, we are nearing full employment and wages pressure. So, no rate hike in Dec but February still looks like a better than even money bet.”
