The weakness in the Australian labour market has been apparent for some time and is perhaps best reflected in the sharp decline in job ads, alongside the huge lift in the number of applicants per job ad:
Most notably, the number of applicants per job ad has soared way above pre-pandemic levels, according to SEEK, reflecting a combination of lower demand (job ads) and soaring labour supply.
As shown in the next chart from Justin Fabo at Antipodean Macro, Australia’s 15-plus labour force grew by 3.0% in the 2023 calendar year amid record net overseas migration and Peter Costello’s ‘baby bonus’ children hitting working age:
This surge in job applicants points to sharply rising unemployment in the period ahead:
On Thursday, the Australian Bureau of Statistics (ABS) released the December labour force survey, which showed that the unemployment rate remained steady at 3.9%; albeit following a sharp 65,000 loss in jobs.
The next chart from Justin Fabo shows that employment growth slowed materially in the last three months of 2023 to only 0.4% over the quarter:
Hours worked have also fallen sharply, down 0.4% over the December quarter:
Finally, the veritable “canary in the coal mine” for the labour market – the share of youth (i.e. 15-24 year-olds) employed – tanked at the end of 2023:
All of which points to not only rising unemployment but also falling wage growth ahead.
The next chart from Justin Fabo plots the wage price index against the labour underutilisation rate (i.e. the unemployment and underemployment rates combined), which points to slower wage growth:
Justin Fabo also produced the below chart showing how falling inflation expectations should crimp wage growth:
Overall, a bleak picture is emerging for Australian workers in 2024.
The upside is that the softening labour market further reduces the likelihood of the RBA hiking rates again.
Instead, expect rate cuts in the second half of the year.
