Investing.com– Australia’s November jobs data, released on Friday, with stronger-than-expected job growth and a decline in unemployment should be viewed in the context of broader multi-month trends, rather than as signs of a renewed tightening in labor market conditions.
“We saw something similar in late 2023 that proved to be a ‘head fake’, with shifting seasonality also presenting as an issue,” Westpac analysts said in a note.
Employment rose by 35,600 in November, exceeding 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 annualized rate falling to 3.0% in November from 4.4% in September, reflecting a broader normalization of labor market activity, according to Westpac.
The unemployment rate dropped sharply to 3.9% from 4.1%, driven by a decline of 27,000 unemployed people. Notably, the rise in employment was almost entirely sourced from previously unemployed individuals, many of whom had been waiting to start work in October, according to the Australian Bureau of Statistics (ABS). This shift was linked to softer labour supply, as the participation rate dipped to 67.0% from 67.1%.
Westpac highlighted the unusual labor dynamics in November, with limited new entrants to the labor force. Employers had to meet their hiring 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 flat at 4.1% if the participation rate had not fallen, analysts said.
While these results indicate a tight labor market, Westpac sees them as part of a gradual normalization following earlier strength. Employment growth and average hours worked are returning to long-term trends, although underutilization measures, such as unemployment and underemployment, remain historically low, analysts added.
Despite the tightness, Westpac believes the risks to inflation are limited. Slowing wage growth suggests the labor market is closer to balance than previously assumed.
Westpac said one should interpret these results considering the seasonal volatility near the year-end, and emphasized the importance of tracking multi-month trends for a clearer labor market outlook.
