Australia: Labour market accelerates into year-end – TDS

Australian employment jumped by +62k (TD +25k, mkt +19k) in Nov, full-time +42k and part-time +20k, while the unemployment rate remained at 5.4% as the participation rate jumped from 65.2% to 65.5% (the highest since Sept 2011), notes the research team at TDS.

Key Quotes

“For perspective, this bumper report is equivalent to a U.S. payrolls report of around 1.6m additional jobs.”

“The RBA board surprised the markets last week with "employers are finding it more difficult to hire [skilled] workers”, so next week's RBA minutes may flesh out the justification for this surprise inclusion. What we imply by ‘surprise’ is usually business liaison observations are reserved for the quarterly outlook board meetings.”

“The AUD jumped through $US0.765 resistance, after the currency already caught a tailwind from the softer U.S. CPI and Fed-led weaker USD overnight. We are bullish AUD, looking for the exchange rate to trade closer to $US0.85 by mid-2018.”

“Implications

• This employment report confirms that 2017 is the year of strong labour market dynamics. Jobs created to date are 80% full-time, explaining the rapid acceleration in hours worked (both male and female workers).
• This November report is also crucial for Dec qtr GDP(P) calculations for the services industry (being mid-month of the quarter) and also forms the underlying data for employment by industry (released next Thursday Dec 21).
• The Phillips curve tells us that wages growth should follow such prolonged outsized employment growth, in turn boosting core CPI. So far this year that pass-through has been feeble at best but at least wages (2.0%) and underlying inflation (1.9%) are both off the floor and rising.
• The next wages report isn’t released until 21 February, adding to RBA patience over the first few months of 2018. The RBA’s next meeting is February 6, after the 31 January CPI report (where we see underlying inflation reaching 2%/yr, even with the new 17th series weights).
• Our base case remains for +25bp in May 2018 unless wages and/or CPI materially surprise to the downside. OIS at present is only 18% priced for a rate hike in May 2018, but after underwhelming low-frequency reports such as core CPI and barely-rising wages growth in recent weeks, it is difficult to argue with such benign pricing just now.”