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Investing.com– Australia’s November employment data released on Friday, with stronger-than-expected job growth and a drop in unemployment, should be viewed in the context of broader multi-month trends rather than signs of a renewed tightening of market conditions.
“We saw something similar in late 2023 that turned out to be a ‘false head,’ with changing seasonality also a problem,” Westpac analysts said in a note.
Employment rose by 35,600 in November, beating Westpac’s forecast of +20,000 and the market consensus of +25,000. However, the pace of employment growth is slowing, with the three-month annual rate falling to 3.0% in November from 4.4% in September, reflecting a broader normalization of labor market activity, Westpac said.
The unemployment rate fell sharply to 3.9% from 4.1%, boosted by a drop of 27,000 unemployed. Notably, the rise in employment came almost entirely from previously unemployed individuals, many of whom waited to start work in October, according to the Australian Bureau of Statistics (ABS). This change was associated with a softer labor supply, as the participation rate fell to 67.0% from 67.1%.
Westpac highlighted unusual labor dynamics in November, with limited new hires in the workforce. Employers had to meet their recruitment needs primarily by tapping into the pool of existing job seekers. This dynamic contributed to a sharp drop in the unemployment rate, which could have remained at the level of 4.1 percent if the participation rate had not fallen, analysts say.
While these results point to a tight labor market, Westpac sees them as part of a gradual normalization after earlier struggles. Employment growth and average hours worked are returning to long-term trends, although measures of underutilization, such as unemployment and underemployment, remain historically low, analysts added.
Despite the tightness, Westpac believes the risks to inflation are limited. The slowdown in wage growth suggests that the labor market is closer to equilibrium than previously assumed.
Westpac said these results should be interpreted in light of seasonal volatility towards the end of the year and stressed the importance of monitoring multi-month trends for a clearer outlook on the labor market.
