22 February 2019
Bob Cunneen, Senior Economist and Portfolio Specialist
Source: Reserve Bank of Australia and Australian Bureau of Statistics.
Australia has recorded strong jobs growth over recent years. Australia’s unemployment rate has also managed to gradually fall to 5% (black line). This is essentially the lowest unemployment rate since 2012. Both strong jobs growth and a lower unemployment rate suggest that Australia’s labour market is making encouraging progress.
However the Reserve Bank of Australia (RBA) on 8 February noted that the “labour market could still have spare capacity”. One possible measure of this ‘spare capacity’ is the underemployment rate (red line). This underemployment rate measures those workers that “would like and are available to work additional hours”.
Currently Australia’s underemployment rate stands at 8.1% and is still well above the 7% underemployment rate in 2012. This indicates that Australia’s labour market is still underperforming in generating sufficient working hours. So until the underemployment rate falls, Australia’s wages growth and inflation pressures are likely to remain subdued. This suggests that the RBA has little choice but to persist with a low cash interest rate at 1.5%.
This communication is provided by MLC Investments Limited (ABN 30 002 641 661, AFSL 230705) (“MLC”), a member of the National Australia Bank Limited (ABN 12 004 044 937, AFSL 230686) group of companies (“NAB Group”), 105–153 Miller Street, North Sydney 2060. An investment with MLC does not represent a deposit or liability of, and is not guaranteed by, the NAB Group. The information in this communication may constitute general advice. It has been prepared without taking account of individual objectives, financial situation or needs and because of that you should, before acting on the advice, consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs. MLC believes that the information contained in this communication is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made as at the time of compilation. However, no warranty is made as to the accuracy or reliability of this information (which may change without notice). MLC relies on third parties to provide certain information and is not responsible for its accuracy, nor is MLC liable for any loss arising from a person relying on information provided by third parties. Past performance is not a reliable indicator of future performance. This information is directed to and prepared for Australian residents only. MLC may use the services of NAB Group companies where it makes good business sense to do so and will benefit customers. Amounts paid for these services are always negotiated on an arm’s length basis.