The jobs market has been resilient in the face of economic challenges. Despite a noticeable deceleration in job growth, it is essential to recognise that the rapid post-pandemic expansion was unsustainable. In August, the 12-month average job change remained close to its highest level in over thirty years, with the unemployment rate still near historic lows.
October 20, 2023
Key Takeaways:
The jobs market has been resilient in the face of economic challenges. Despite a noticeable deceleration in job growth, it is essential to recognise that the rapid post-pandemic expansion was unsustainable. In August, the 12-month average job change remained close to its highest level in over thirty years, with the unemployment rate still near historic lows.
However, recent data suggests that the jobs market is gradually weakening due to increased labour force participation and the rise of multiple job holders, largely driven by a significant increase in immigration.
Strong immigration has significantly bolstered the labour force, contributing to a rise in the underutilisation rate. Although the demand for workers has tapered off slightly, it remains high. Business employment intentions continue to surpass their long-term averages, and job advertisements remain historically elevated.
The rate of layoffs remains modest compared to historical standards, with minimal transitions from full-time work to unemployment. This trend aligns with the current low retrenchment rate, reinforcing the perception of job security. A similar pattern is observed in the United States job market.
Interestingly, despite the low unemployment rate, consumer confidence regarding job security has waned. The proportion of workers contemplating job changes has fallen below the long-term average. This shift reflects growing unease about unemployment, which has been on the rise over the past year and is approaching its historical average. Moreover, there has been a noticeable increase in the number of job applications per vacancy.
The decline in household confidence can be partly attributed to the rising underutilisation rate. However, it is inconsistent with the very low unemployment rate, the abundance of job opportunities, and the scarcity of layoffs. A probable explanation lies in the current cost-of-living crisis, which may make workers reluctant to take any risks that could temporarily reduce their disposable income.
In all sectors of the economy, finding workers has proven challenging. Worker shortages are particularly acute in education, health, welfare, and utilities sectors, possibly reflecting substantial investments in clean energy. The speed at which employees secure new roles in most industries has increased, except for public administration, where lower wage increases may make it harder to attract talent.
Despite the overall strength of the jobs market, certain industries have experienced job losses in the first half of the year, potentially due to data inconsistencies or slowed demand in sectors like finance and real estate. It underscores that examining aggregate job growth alone may not fully depict the job market’s industry-level dynamics.
While the jobs market remains strong, it has started to show signs of weakening. The demand for workers is decreasing, and this trend is expected to continue in the coming months. Concurrently, the supply of workers has surged, mainly due to increased immigration. This combination is likely to lead to a rise in the unemployment rate next year. The Reserve Bank of Australia (RBA) anticipates the unemployment rate to reach 4.2% by mid-2024, in line with this perspective. The financial markets consensus predicts 4.5%, but I believe the rate may rise even further, reaching 4.75% by the end of the year. The evolution of the unemployment rate in 2024 will play a pivotal role in determining future interest rate adjustments.
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