Great research note by Gareth Aird at Commbank, where he predicts that the unemployment rate in Australia will rise to 4.5% by the end of 2024.
The latest ABS report showed unemployment dropped to 3.7% in February, while the trend remained at 3.8%.
Aird says the sharp rise in employment (green below) in February is at odds with Commonwealth Bank data on the number of salary payments transferred into CBA accounts. The annual percentage change (blue) is declining steeply.
He says that the labor market should not be viewed in isolation but assessed against GDP data. GDP growth is falling and negative per capita GDP growth — indicating a per capita recession in the last three quarters — reinforces that the economy is growing below trend.
It is unusual to have such strong growth in employment in a slowing economy that is running well below trend. But it’s not unprecedented.
However, the trend in employment (blue) is still declining and ABS research (according to Aird) has previously shown that trend data is “superior” to seasonally-adjusted data (red).
Declining Seek job ads (blue below) since May ’22 also show that the tight labor market is now easing.
Conclusion
The Australian labor market is expected to weaken in 2024, with the unemployment rate rising.
Poor employment growth is likely to drag GDP growth even lower.
Commbank project three RBA rate cuts of 25 basis points each, commencing in September 2024, based on a deteriorating employment market. Our own view is less certain, given the potential of higher crude oil prices to increase inflationary pressures and slow RBA monetary easing.
Acknowledgements
- Commbank Economic Insights, Gareth Aird: Tension between labour market and GDP data has returned, 27 March 2024
- ABS: Labour Force, February 2024
- Seek: Employment Report, February 2024
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.