RBA assistant governor Sarah Hunter. — Bloomberg
SYDNEY: Australia’s central bank has been surprised by the “limited” easing this year in some key employment indicators, assistant governor Sarah Hunter says, reinforcing its view that the labour market is still operating above full capacity.
“Conditions in the labour market have eased since late 2022, but our assessment is that the labour market is still tight relative to full employment,” Hunter told an economic forum in Sydney yesterday.
“We also expect employment to continue to increase, but at a slower pace than population growth.”
That outlook is a major reason why the Reserve Bank of Australia (RBA) has stuck to a hawkish stance in the face of a slowing local economy and as global counterparts either begin cutting interest rates or signal plans to do so.
Governor Michele Bullock had said recently that monetary policy will need to remain “sufficiently restrictive” until inflation moves sustainably toward the RBA’s 2% to 3% target.
Hunter, who only joined the central bank at the start of the year, didn’t directly address the rate outlook in a speech titled “Understanding the Journey to Full Employment.”
The RBA has raised rates to a 12-year-high of 4.35% to try to gain control over inflation.
In response, the economy has slowed to a crawl as households reined in spending, but employment has been surprisingly resilient with the jobless rate at a still-low 4.2%.
Hunter expects measures of underutilisation – including the unemployment rate – to continue rising gradually, before stabilising as gross domestic product growth picks up next year.
“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.
Forward indicators of labour demand such as job vacancies have cooled this year.
A gauge of job advertisements released last week was down almost 23% in August from a year earlier.
“Our view is that further falls in vacancies can still occur alongside a relatively modest increase in the unemployment rate,” Hunter said.
“Compared to other economies that have seen larger increases in their unemployment rates, the Australian economy has a higher ratio of vacancies to unemployment, relative to historical experience.
“This suggests that there is space for vacancies to fall further without a sharp increase in the unemployment rate.” — Bloomberg
