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Economists underwhelmed by labour market

AAP logoAAP 16/09/2016 Garry Shilson-Josling, Economist

Economists were underwhelmed by the latest jobs figures, although the drop in the jobless rate to a three-year low did not go without a grudging mention.

The unemployment rate edged back a notch in August to 5.6 per cent, its lowest since 2013 despite a marginal fall in the number employed.

That was partly because the proportion of the working age population active in the labour market dropped sharply, cutting the estimated size of the labour force even faster than the number employed.

Commonwealth Bank's Gareth Aird, taking a longer view, would not give all the credit for the unemployment rate's three-year low to the participation rate, which he said was almost exactly in 2013 what it is now, despite the dip in August.

"On that basis alone, it's quite an incredible result given the headwinds the economy has faced over that period.

"What is different, however, is the underemployment rate (the proportion of the workforce wanting to put in more hours) which posted its highest recorded level today at 8.7 per cent."

He said that indicated plenty of spare capacity in the labour market, underpinning both "incredibly week" wages growth and below-target inflation.

HSBC's Paul Bloxham and Daniel Smith pointed to measurement issues with the labour force figures, especially the August data.

"We are therefore cautious about reading too much into the numbers," they said.

The unemployment rate would actually have climbed to 5.9 per cent if participation had held steady, they said.

"Overall then, the monthly result is a weak one."

Most indicators pointed to annual jobs growth of around two per cent.

That's enough to keep unemployment "broadly steady", but it could drift down gradually if participation - which is unusual with solid employment growth - continues to fall, the HSBC team said.

"We also see potential for the labour market to strengthen from around mid-2017 as the drag from mining investment diminishes and domestically-driven growth picks up."

St George bank's Hans Kunnen said it was always good to see the unemployment rate fall.

"The decline, however, came courtesy of 'discouraged' workers, with the participation rate falling to 64.7 per cent, its lowest since June 2015," he said.

And the news for wage-earners was not encouraging.

"The unemployment rate has declined but there is little evidence of upward pressure on wages apart from one or two sectors where bargaining power is strong," Mr Kunnen said.

National Australia Bank's Tapas Strickland shared the view that lower unemployment rate, while driven by lower participation, was good news.

"But flat employment overall, a tilt in trend employment gains this year to part-time and an underutilisation rate that has been creeping higher this year suggests that labour market improvement has slowed," he said.

And he suggested that a monthly rise in full-time employment, identified by several economists as a bright spot in the data, could have been the result of part-time workers picking up extra work on the Census, pushing them into the full-time work category.

"Overall today's is a mixed report with a soft edge," he said.

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