New Economic Perils: Jobless Rate Jumps To 5.3%

However, coronavirus outbreak, drought and bushfires have led to a certain amount of uncertainty in the economic and business environment of Australia. These events have led to disruption in tourism, agriculture and infrastructure in addition to a rise in inflation.

The bushfire incident is expected to have a pressure on March and December quarter growth rates.

Having said that, though, the RBA growth forecast remains unchanged since November, at 2.75 per cent this year and around 3 per cent over next year.

These outcomes have been in line with the global economy where the outlook has been easing in terms of US-China partial trade settlement in January 2020 posing relief on downside risks. Favourable corporate financing conditions, low credit spreads and growth supportive global financial market conditions reflect optimistic sentiments globally.

However, market participant and economists are closely eyeing the growth spillover impacts from the China’s coronavirus outbreak on the global economy.

Unemployment rate Soars; Surpasses Predictions in January 2020

As per the recently released data by ABS, after an unexpected fall in the seasonally adjusted unemployment rate to 5.1% in December 2019, there was an uptick of 0.2% points in the unemployment rates in January 2020, reaching to 5.3%. Moreover, the underemployment rate and underutilisation rate witnessed a rise of 0.3% points and 0.5 % points to 8.6% and 13.9%, respectively.

An increase in the unemployment rate pushed the AU currency lower, raising the probability of subsequent interest rate cuts to inject the necessary stimulus in the economy. Moreover, RBA also recently hinted at prolonged periods of low interest rates to ensure full employment and target level inflation in the economy.

The monthly hours worked in all jobs witnessed a dip of ~8 million hours in January 2020 to ~1,782 million hours.

However, the reported employment figures showed an increase of 13,500 people reaching to 12,995,400 people in January, while the participation rate touched 66.1%, representing 0.1% points uptick.

Employment growth was supported by a substantial rise of 46,200 people to 8,882,200 people in full-time employment but also a fall of 32,700 people to 4,113,300 people in part-time jobs at the same time.

Unemployment Rate (Data Source: ABS)

There has been a rise of 0.3% points in the unemployment rate for females to 5.2% in January 2020, compared to 4.9% in December 2019, and an uptick of 0.2% points in unemployment rates for males to 5.4% in January 2020.

Seasonally adjusted State-wise figures indicated that unemployment rates rose for all the Australian states except South Australia, which saw a fall of 0.5% points to 5.7%. Queensland and Victoria experienced the highest rise in unemployment rates of 0.6% and 0.5%, reaching a rate of 6.3% and 5.4% respectively.

Sluggish Wage Growth

While in the latest meeting RBA hinted that further uptick in wages growth would be a positive development ensuring the inflation ranging in its 2-3% target, the recently announced wage growth data shed light on tight job market scenario.

The seasonally adjusted Wage Price Index (WPI) witnessed sluggish growth at 2.2% in 2019 and 0.5% in December quarter 2019, reflecting the spare capacity of the labour market.

The public sector witnessed the slowest wage growth since the beginning of the series, at 0.4% in December quarter and 2.2% over the year to December. While, the private sector figures depict 2.2% growth in the last Quarter and 2.2% growth over the year to December.

Connecting the Dots in the Labour Market

Unemployment rates have remained mainly at the same levels as a year ago, even after decent employment growth. A rise in labour force participation rates has been the significant reason behind an increase in employment rates.

Moreover, subdued wage growth and a period of extended low inflation have resulted in lower-wage expectations by various firms and workers. Low growth in nominal household disposable income for past few years also reflects softened wage growth.

However, during the second half of 2019, the household disposable income rose supported by offsetting taxes and low-interest rates.

Economic Outlook for Australian Economy

According to RBA’s February Monetary Policy Meeting, the GDP growth rate is likely to be impacted in near term amidst coronavirus and bushfire impact, leading to downward revision in employment growth forecast.

However, RBA expects growth momentum to pick up in second half of the year, supported by easing in monetary policy, the reversal in dwelling investment, growth in consumption and household income along with improvement in mining and housing market activities.

According to RBA’s forecast, the unemployment rate is anticipated to remain in the 5 to 5.25% range for some time. Further, the unemployment growth is expected to fall around 4.75% in 2021. If GDP picks up as per the expectations, unemployment could decline to the target level in 2021.

There are expectations of strong private domestic demand during the second half of 2020. While the intention of the firms to hire have moderated, but they have largely remained on the positive side.

US-China trade settlement during early 2020 is a partial step of alleviating one source of growth uncertainty for all economies. However, one cannot ignore that the uncertainty remains with coronavirus, bushfires and climate related events affecting the economy. GDP growth, food inflation, service and rural exports are some of the indicators to bear the brunt of these uncertain events.

Ultimately, wage and price inflation will largely depend on how the spare capacity within the labour market is utilised when there is a surge in economic growth, and the amount of push felt from housing inflation.

Nation’s central bank, however, is ready to step up the monetary policy easing if needed to support full employment levels, sustainable growth and meeting the inflation target.