From Capital Economics:
The Australian labour market appears to be coping surprisingly well with the end of the mining boom. However, we suspect that the recent data overstate the strength of the labour market. Moreover, if the economy slows sharply this year, as we expect, then jobs growth will follow suit. By the end of the year the unemployment rate may have risen from 6.0% in May to around 6.5%. This weakening in the labour market will be one of the factors that force the Reserve Bank of Australia to stop sitting on its hands and start cutting rates again.
While it may be too soon to dismiss the strength of the labour market as a statistical artefact, there are signs within the data that suggest the recent large gains in employment are unsustainable. In particular, they have been driven by large increases in just a couple of sectors and seem unlikely to be repeated. What’s more, we suspect that mining employment still has a long way to fall, which will weigh heavily on employment growth. (See pages 2-3.)
…We forecast that by the end of the year the unemployment rate will rise from 6.0% in May to close to 6.5%. We expect it will rise above the peak of 6.5% envisaged by the RBA next year too. The RBA will be hard pressed to stand by and keep rates on hold once the unemployment rate resumes its climb.
We at MB are not surprised by the recent firming of the labour market, though it is not terribly strong. If you run a rampant property bubble in your two most populous states then you’re going to get some jobs out of it for a while.
However, as the bubble slows, residential construction tops out, the mining construction boom continues its huge collapse and the vehicle assembly wind down begins, it is spectacularly foolhardy to conclude that the labour market weakness has passed.
