The RBA Will Cut Rates Next Year
Shane Oliver | Dec 20, 2018 13:33
Originally published by AMP Capital
- Employment rose by 37,000 in November, well above market expectations for a 20,000 gain.
- The unemployment rate rose to 5.1%, as participation rose to 65.7%.
- Annual jobs growth slowed but to a still strong 2.3%, albeit it’s down from a high of 3.6% in January.
- The quality of jobs growth was poor with 6,400 less full time jobs and full time jobs growth falling to 2.1% year on year compared to part time jobs growth of 2.7%.
- Reflecting the fall in full time jobs, hours worked fell -0.2% month on month and slowed to 1.1% year on year.
Overall the Australian jobs market remains strong but it has slowed down a bit and the quality of jobs growth has deteriorated a bit in the last month.
Mainly reflecting slowing growth in job ads, our Jobs Leading Indicator – based on job vacancies, job ads and hiring plans - points to moderating but still solid employment growth.
Labour market underutilisation rose in November as unemployment rose to 5.1% and underemployment rose to 8.5% resulting in an increase in the total labour market underutilisation rate to 13.6% (from 13.3%). This continues to contrast with the US, and remains a constraint on wages growth even though September quarter Enterprise Bargaining Agreements showed a rise in wages growth in new agreements (mainly in the public sector).
Finally, ABS data showed that population growth in Australia remained strong over the year to the June quarter at 391,000 or 1.6% with roughly 60% of this coming from net immigration. Strong population growth remains an underlying source of support for housing demand and is one argument against a property price crash, although it would be weakened if immigration is cut significantly. Population growth is strongest in Victoria and the ACT (both at 2.2%yoy), followed by Queensland (+1.7%yoy) and NSW (+1.5%yoy) but its falling in the NT (at -0.1%yoy).
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Solid jobs growth will benefit consumers through higher aggregate household income, as well as boosting consumer sentiment. However, there are some signs in job advertisements that have slowed substantially that jobs growth will slow going forward and there is still a large amount of labour market slack which will act as an ongoing constraint on wages growth. Meanwhile, the Australian consumer continues to face headwinds due to the ongoing housing market correction and a savings rate that is already extremely low.
There is no change to our view that the RBA will cut interest rates next year but not until the second half.
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