The Australian labour market: what to expect from this week’s employment and wages data

When is the data released?

The Wage Price Index data is released on Wednesday the 15^th of May at 11.30AM (AEST); and employment data is released on Thursday the 16^th of May at 11.30AM (AEST).

The labour market data that matters:

What are the key themes to watch?

1. Employment Growth and the Unemployment Rate

The Australian economy has experienced robust jobs growth for several years. The consequence has been an increasingly tight labour market, with the unemployment rate falling at stages this year to as low as 4.9 per cent. Such conditions haven’t been experienced since mid-2011; and is one of the core reasons the RBA remains optimistic about the outlook for the Australian economy. Economists aren’t expecting a change to the status quo this week, which plays well into the RBA’s narrative: consensus estimates are suggesting a steady unemployment rate and a solid jobs gain of 15k this month.

2. Wage growth and underemployment

Much like developed economies the world-over, one cause for endemically low inflation and interest rates within the Australian economy has been the lack of wages growth. Despite a tighter labour market, and signs spare capacity is gradually being absorbed in the economy, wage growth has proven tepid at best, languishing below 2.50 per cent for the better part of 5 years. Though the causes for this dynamic are complex, one reason for the phenomenon has been “underemployment” in the Australian economy. Economists and analysts alike will be keeping a close eye on underemployment and wage growth, for any indication of emerging inflation pressures.

What are surveyed economists expecting?

How could the data impact financial markets?

1. Interest rates

The RBA have put the labour market front and centre of their monetary policy considerations. While acknowledging soft domestic inflation, and sub-optimal economic growth conditions, the RBA has stated that while joblessness remains low, it feels comfortable keeping interest rates at 1.50 per cent. After last week’s RBA meeting, and the release of its Monetary Policy Statement, where this message was reaffirmed, interest rate trades have pushed back bets of rate-cuts from the RBA. If the labour market data disappoints, expect rate cut expectations to be bought forward again, and drag bond yields down; while if it exceeds forecasts, expect the opposite to prove true.

2. Australian Dollar

The Australian Dollar has grown out of favour recently, as Australia’ economic fundamentals deteriorate, and heightened global geopolitical risks drive investors to safe-haven assets. The AUD/USD has become very familiar with the 0.6900 handle, pinned down by widening yield differentials. While the trend will be difficult to reverse in any event, a stronger than expected wage growth figure, or a beat in the headline employment rate, will probably give the AUD a lift. Conversely, a disappointing set of numbers will keep downward pressure on the AUD/USD – though any move lower in the pair may be a grind, given the “short-Aussie” trade is a crowded one.