24 October 2016

Over the past week Australian shares were 0.1% lower. Shares in developed countries gained 0.4% with the US market up 0.4%. Shares in emerging markets gained 1.6%. The Australian dollar was 0.1% lower at 76.08 US cents. The 10 year bond yield in Australia was 0.02% higher at 2.28% while in the US, the 10 year bond yield closed the week 0.06% lower at 1.74%. The oil price gained 1.0% to 50.85 US dollars per barrel.

While the headline figures for Australia’s economy are the envy of the developed world, with economic growth of 3.3% and an unemployment rate of 5.6%, if we dig deeper we find a mixed story on labour markets. Our “mega mix” of pictures below provides some more detail.

In Australia the participation rate has fallen recently (chart top left). This means that a lower percentage of the working age population is actively seeking work. There can be a number of reasons. One possible reason is that an increasing number of people might think they have low prospects of getting a good job. We call this the “deterred worker” effect.

We have also seen a subtle change in the mix of employment (chart top right). Over the past five years the percentage of workers in full time employment has dropped by 2.5%, replaced by part time and casual workers.

The trend in wage growth has clearly been down (chart bottom left). Nonetheless wage growth remains above the inflation rate, currently 1%, so people are experiencing greater purchasing power with their wages, but the growth is small. This might be due to mixed productivity growth (chart bottom right). We expect that the benefits of good medium term productivity growth will be shared with workers through higher wage growth.

Overall further improvement is possible in Australia’s labour markets, even though this might not be reflected in the unemployment rate itself. A higher participation rate, a greater level of full time employment, along with wage growth linked to productivity improvements, would all be further indicators of strong sustainable economic growth.

Signing off
David Bell

Past performance isn't necessarily an indicator of future performance.
All data sourced from Bloomberg and the Reserve Bank of Australia.