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Chief economist update: Australia's not jobless recovery

It's only been only two weeks since the Reserve Bank of Australia (RBA) provided a more optimistic assessment of and outlook for the domestic labour market.

In its February 2021 'Statement on Monetary Policy' (SoMP), the RBA declared that: "The outlook for the labour market has improved as a result of the better starting point and growth outlook. It now appears that the unemployment rate has already peaked. Although the end of the JobKeeper program in March creates some uncertainty for the near term, over the whole forecast period employment growth is expected to remain solid, consistent with the ongoing recovery in activity,"

"The unemployment rate is expected to continue declining, but will still be around 6 per cent at the end of this year and 51/2 per cent at the end of next year, reaching around 51/4 per cent by mid 2023."

Three months earlier, the RBA's November 2020 SoMP forecast the unemployment rate at 6.5% by the end of this year and 6.0% in 2022 - themselves, upgraded from the 8.5% (in 2021) and 7% (2022) printed in August 2020.

At the rate the labour market is going, chances are the RBA is going to revise up its unemployment rate projections in three months' time.

The Australian Bureau of Statistics' (ABS) reported that 29,100 workers found employment in January - in line with market expectations. Though the monthly addition in jobs has slowed -- 180K in October, 90K in November and 50K in December - January marked the fourth straight month of employment gains.

Not only that, Bjorn Jarvis, head of labour statistics at the ABS, pointed out that: "Nationally, employment was only 59,000 people lower than March 2020, having fallen by 872,000 people early in the pandemic."

Wait, there's more! The details of the report indicate better underpinning for the labour market and the economy. The latest survey shows all of January's gains were due to increased full-time hiring (59,000) that was partly offset by reduced part-time employment (29,800). The 'permanent income hypothesis' dictates that full-time workers tend to spend and borrow more (because they attribute more permanency in their incomes) than part-timers.

The unemployment rate dropped to 6.4% in January from 6.6% in the previous month. At its rate of decline over the past three months, the unemployment rate would hit the RBA's 2021 forecast of 6.0% in the next two months (March) ... and that's despite the participation rate remaining at around 17-month highs - itself, a measure of workers' optimism over their employment prospects.

This is backed by the Westpac-Melbourne Institute index of consumer sentiment that showed "unemployment expectations" dropped by 3.8% over the month and by 15.0% from a year ago to 114.5 points in February - below its long term average of 130.1 points.

Having said all these, we'll have to wait until the end of March to see if the Australian labour market had only been running of JobKeeper's fumes.

Read our full COVID-19 news coverage and analysis here.

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