RBA surprised by strong jobs market
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The news: Reserve Bank of Australia (RBA) economic assistant governor Sarah Hunter has told the Barrenjoey Economic Forum in Sydney that the central bank has been surprised by resiliency in the labour market, which differs from other peer economies.
The numbers: The latest available labour force data from the Australian Bureau of Statistics shows us that the unemployment rate increased slightly to 4.2% in July. The participation rate also increased, to 67.1% while underemployment fell. The Reserve Bank’s most recent forecasts tipped unemployment to rise to 4.3% by December 2024, then climb to 4.4% by June 2025 and remain at this level until at least the end of 2026.
The context: Hunter said employment continues to be tight and many indicators are suggesting an easing in the labour market, towards full employment, however this could “play out in many ways”.
She re-emphasised the challenges of forecasting in the current economic environment, noting there are risks to both the upside and the downside for the labour market and the central bank is remaining vigilant.
Hunter's keynote address has been delivered on the tail end of a politically turbulent period for the RBA, following Treasurer Jim Chalmers' comments that higher interest rates are "smashing the economy". This statement was interpreted by some as an attack on the RBA.
One of the major points of contention has been the description of the economy by Hunter as "hot" in parts, while Chalmers has said this does not hold up to the evidence and he describes it as "soft".
The RBA has a dual mandate which requires it to both target inflation at 2% to 3% and to seek to maintain full employment. It has been looking to hold on to as many of the gains in the labour market from the pandemic as possible while increasing rates to get inflation down. Hunter's speech focused specifically on full employment.
What they said: "The limited signs of further easing in the latest observations for variables such as average hours worked and the underemployment rate at a time when economic growth has continued to slow is somewhat surprising and is a key uncertainty in the outlook," Hunter said.
"The participation rate has continued to trend upwards, reaching a record high in July. This has not been the experience in most other peer economies," she said.
"Whereas participation rates amongst this group have largely begun to stabilise, in Australia the participation rate has continued to increase steadily in the post pandemic period."
The source: RBA speech
