Australian Markets Weekly: 19 March 2018

Alternative measures of labour market tightness.

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Overview

  • This week is primarily about the US FOMC meeting at which new Fed Chair Jerome Powell is widely expected to lift US interest rates, thereby taking official US rates above Australian official interest rates for the first time since the early 2000s. While this is already discounted by markets, the Aus-US interest rate differential continues as a negative force for NAB’s model of $A Fair Value, though to date, this has been largely offset by stronger commodity prices. Last week, however, the intensification of US-China trade concerns and related-risk aversion saw the $A weaken.
  • In Australia, the RBA March Board Meeting Minutes (Tuesday) and Labour Force data for February (Thursday) will both be closely scrutinised for any indications of progress in reducing spare capacity in Australia’s labour market. The latter is critical for views on RBA monetary policy as a reduction in spare capacity is a pre-requisite for faster wages growth, which in turn is likely to lead both stronger consumption growth and higher inflation. The Bank expects the fall in unemployment, and pick-up in wages and inflation to be gradual, from which we may infer that any resultant monetary policy changes are also likely to be gradual.
  • While not much new is expected in the Minutes, the market is likely to focus on the discussion surrounding the view expressed at the March Board meeting that wages growth has troughed, together with any focus on developing skilled labour shortages, which the RBA has been noting more frequently in recent months (and which our visits to businesses are also detecting).
  • The February Labour Force data also contain the latest quarterly update on Underutilisation (Unemployment + Underemployment), which the NAB survey suggests should continue to improve. It’s worth noting, however, that the RBA considers the unemployment rate the best measure of underutilisation – NAB cap use leads unemployment by around seven months.
  • In today’s Weekly we consider a number of alternative measures of tightness of Australia’s labour market from SEEK, namely, Candidate Availability trends (the ratio of the number of applications for each job advertised on SEEK) and Average Advertised Salaries on the SEEK site, which should be a leading indicator or pressure index for general wages trends.
  • Looking at this data, we find that on the whole there remains reasonable Candidate Availability across the Australian labour market, though conditions are gradually tightening. Conditions are tightest in the NSW and Victorian labour markets, and least favourable for candidates (best for employers) in WA, QLD, the NT and Tasmania (the first three having the largest exposure to mining). Encouragingly, conditions have begun to improve in QLD and WA.
  • On the wages front, average advertised salaries have begun to improve across the country, again lead by NSW and Victoria. But average salaries are also improving in Mining, WA and QLD, which is an encouraging development.

For further details, please see the attached document:

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