Australia's Jobs Growth Keeps Surging, But Something's Missing

(Bloomberg) -- Australian employment surged in December, capping one of the strongest years of jobs growth on record. The nation still isn’t cheering.

Data out Thursday showed the economy added twice as many roles as forecast in December, in the 15th straight month of job creation. But the currency was little moved -- after initially whipsawing -- while the creation of 400,000 jobs last year has done little for the government’s political fortunes. The reason: the so-called jobs bonanza isn’t translating into wages growth.

Patience may be required. Beneath the headline number, the figures appear solid, with most of the new roles full-time. That should start soaking up some of the slack that’s been suppressing wages growth and inflation, and offer comfort to the central bank which has kept its benchmark interest rate at a record low for 17 months. But debt-laden households struggling with stagnant wages remain a threat to consumption and a key deterrent to rate hikes.

Australia's Jobs Growth Keeps Surging, But Something's Missing

Despite the employment gains, the jobless rate ticked up 0.1 percentage point in December, to 5.5 percent. That was due to more people joining the search for work, with the participation rate climbing to 65.7 percent, the highest in almost seven years. But economists and markets are holding out for more than blockbuster numbers -- they need to see fatter pay packets feeding through to inflationary pressures before rate hikes become a serious talking point.

What Our Economists Say...

Unemployment ticked higher, but Australia’s strong hiring momentum remained intact. If sustained, this should start to lift wages and fuel expectations of Reserve Bank of Australia tightening. As long as wage growth remains below 3 percent, Bloomberg Economics expects the RBA to leave its cash rate target unchanged at 1.5 percent. Some pickup in wages is needed to allow highly-indebted households to deleverage.

-- Tamara Henderson, Bloomberg Economics

Key Details of Thursday’s Jobs Report:

  • Employment rose 34,700; economists forecast 15,000 gain
  • Jobless rate climbed to 5.5%; estimate 5.4%
  • Full-time jobs gained 15,100; part-time employment increased 19,500
  • Participation rate rose to 65.7%; economists predicted 65.5%

New South Wales, the most populous state and home to Sydney, continued to be a powerhouse of the economy, adding the most roles in December with 14,300 gains. Western Australia continues to show signs of post-mining boom recovery, adding 6,100 new jobs and the second highest increase in the month.

Victoria’s unemployment rate climbed 0.6 percentage point in December, followed by a 0.4 percentage point increase in Tasmania. Western Australia saw the largest fall in jobless, falling 0.9 percentage point to 5.7 percent.

“While the RBA and Treasury will likely welcome the strong jobs growth, we think the focus of monetary policy remains on unemployment and wages growth,” said Daniel Blake, an interest-rate strategist at Morgan Stanley. “With the debate on a wages recovery unlikely to be decisively proven until mid-2018 at the earliest, we do not expect a change in the RBA’s ’optimistic, not hawkish’ positioning.”

©2018 Bloomberg L.P.