Labour market indicators ‘deteriorating rapidly’ as interest rate hikes bite
Job vacancies and other labour market indicators are deteriorating quickly, suggesting there may be a further cooling in the jobs market in the months ahead, says a chief economist.
AMP chief economist Shane Oliver said the number of job vacancies is falling sharply as interest rate hikes put downward pressure on overall economic growth.
Job openings decreased for the fifth consecutive quarter, falling 8.9 per cent over the three months to August, leaving them 18 per cent below their May 2022 high.
“This has taken the ratio of job vacancies per unemployed person from a high of 1 in July last year to now 0.7. The level of job vacancies are still high indicating a still tight labour market, but they are now falling rapidly indicating that the labour market is rapidly cooling,” said Mr Oliver.
“Leading labour market indicators, including job vacancies and job ads and the ratio of job vacancies to unemployment are now all deteriorating, pointing to a further cooling in the jobs market ahead.”
Dr Oliver said this is likely to see wages stabilise next year but that they could fluctuate in the near term.
Recent ABS data has also indicated that retail sales have also softened. While Australian nominal retail sales rose 0.2 per cent in July, in annual terms, growth in retail sales slipped further to 1.5 per cent, the slowest since the August 2021 lockdowns.
Dr Oliver noted that retail figures are in nominal terms and that annual inflation remains high.
“This means retail sales volumes are likely continuing to fall despite rapid population growth. On our estimates, real retail sales are running down 2 per cent on a year ago,” he said.
The two sets of data, he said, confirm the ongoing weakness in consumer spending and a tight but cooling labour market.
This is likely to see the RBA leave rates on hold at its monthly board meeting this afternoon.
“Signs of rising wages growth in enterprise bargaining agreements and still high inflation mean that the risk of another rate hike is high though (at around 40% in our view) but if this were to occur it probably won’t come until November or December after the next round of ABS inflation and wages data and revisions to RBA forecasts,” said Dr Oliver.
“But given falling real retail sales and the softening jobs market it’s a tough one for the RBA and we continue to see the RBA cutting rates next year starting around June as the economy weakens with a very high risk of recession.”
The fall in job vacancies is likely to result in the unemployment rate creeping up over the next few months.
“The economy appears to be maintaining a steady slowdown, and thus far business activity is not falling precipitously. However, CreditorWatch BRI data from August 2023 does show a significant fall in the average value of invoices since their peaks in late 2019. The slowdown has been more apparent since the start of 2023, and does indicate that monetary policy tightening is impacting the SME sector already,” he said.
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