Australia: Spare capacity remains for labour market - HSBC

Research Team at HSBC notes that the Australia’s unemployment rate rose by 0.1ppt in December to 5.8%, leaving it broadly unchanged through 2016 and above its full employment level (5.00-5.25%).

Key Quotes

“Jobs growth was solid in December and close to expectations at 13.5k (market had 10k) and the participation rate rose by 0.1ppt. The unemployment rate has tracked between 5.6% and 5.8% since February 2016. Spare capacity in the labour market has weighed on wages growth and domestic inflation.”

“For 2017, we expect a modest tightening in the labour market, which should provide some support for wages growth. The recent lift in commodity prices is also expected to feed through, as there is a strong positive historical correlation between commodity prices and unit labour costs. Some stabilisation in wages growth should be enough to keep the RBA from cutting further. We expect the RBA to remain on hold over coming quarters.”