The unemployment rate has fallen sharply to a six-year low of 5 per cent in September even though the boom-time pace of growth recorded in August was unable to be matched.
New figures released by the Australian Bureau of Statistics on Thursday showed that only 5,600 jobs were added last month, on a seasonally adjusted basis. The participation rate declined to 65.4 per cent from 65.7 per cent.
Economists were looking for the economy to add 15,000 jobs and keep the unemployment rate steady at 5.3 per cent. In August, 44,600 new jobs were created and most of those were full time roles. The strength of that report failed to intensify expectations for an interest rate rise because the Reserve Bank is still battling to find sources of wage inflation given the spare capacity embedded in the labour force.
The Australian dollar shot up briefly in response to US71.43¢ and settled at US71.23¢.
On Wednesday, Reserve Bank deputy governor Guy Debelle indicated a break-out in wage inflation is not imminent.
“The recent international experience indicates that the unemployment rate could decline further than historical experience would suggest before we see a material increase in wages growth,” he said. The Reserve Bank remains confident that wage growth “will continue to pick up gradually”.
Its official forecasts see the unemployment rate at 5.5 per cent in the December quarter, moderating to 5.25 per cent by June 2019.
Meanwhile, economic growth accelerated to its fastest pace since 2012, the latest reading for the June quarter showed, as gross domestic product expanded at an annual rate of 3.4 per cent.
Paul Dales from Capital Economics said Thursday’s figures mean the unemployment rate has now fallen to the Reserve Bank’s estimate of the natural rate, two years and three months ahead of schedule. But he believes the correct level is closer to 4 per cent, not 5 per cent, for the Australian economy.
“The unemployment rate could probably fall someway further before the cyclical upward pressure on wage growth intensifies,” Mr Dales concluded.
Elsewhere, National Australia Bank’s business conditions index decreased 2 points to a positive reading of 13 points in the third quarter, but remains well above its long-run average. The business confidence component fell to “a little” below its historical average.