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Economists ponder sluggish jobs market

AAP logoAAP 18/11/2016 Garry Shilson-Josling, Economist

In what is likely a welcome diversion from guessing the implications of Trumponomics, the thoughts of Australia's economists have turned to the labour market.

Commonwealth Bank economist Kristina Clifton said the 0.4 per cent quarterly rise in wage rates and annual growth of 1.9 per cent reported on Wednesday - both the weakest in the 19-year history of the data - confirmed wages growth is still slowing.

"This is consistent with an uncomfortably high level of labour market under-utilisation and elevated job security fears, which means workers are reluctant to push for wage increases," Ms Clifton said.

Both business and union officials in wage negotiations have low expectations for inflation.

"This means that there is little upward pressure on wages growth from that side of the equation either," Ms Clifton said.

National Australia Bank's David de Garis warned against making too much of the incremental slowdown, but said this wages growth indicator had undeniably reached another record low.

That suggested even less upward wage pressure on consumer inflation, which at 1.3 per cent is already under the RBA's two to three per cent target range, and struggling to recover.

"It doesn't bring the RBA's inflation target any closer to being reached; it risks shifting it out a little if anything," Mr de Garis said.

Despite the disappointing absence of signs of renewed wages growth, he was not despairing.

"Forward-looking indicators of labour costs such as advertised salaries on SEEK are a little more hopeful that some growth may be beginning to reappear," he said.

But St George Bank's Janu Chan was not expecting a quick turnaround after October jobs figures on Thursday confirmed "a poor year of job gains to date".

"Softer labour market conditions reduce the prospect that we will see a pickup in wages and inflation over the medium-term," she said.

"Taken with other signs that economic activity has lost some momentum, there is a heightened risk that the RBA is not done cutting rates in this cycle."

ANZ Bank's Felicity Emmett said the RBA would be disappointed with the jobs data, which showed the trend in employment growth had turned negative.

"Along with (Wednesday's) wages report ... they suggest that the labour market has lost some momentum over recent months," she said.

"Without a tightening in labour market conditions and a flow through into higher wage growth, the RBA's forecast for underlying inflation to gradually return to the band next year will remain under pressure."

Westpac's Justin Smirk focused on the decline in labour force participation since March, which had stopped the jobless rate from rising to 6.3 per cent rather than staying at a three year low of 5.6 per cent in October.

The decline, seen mainly among males, was beyond what's normal when the jobs market softens, Mr Smirk said.

"So this looks far more like a fundamental event where older males are becoming disillusioned with the lack of employment and deciding to leave the workforce (most likely to retire) than some statistical anomaly."

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