Australia: Healthy labour market should keep the RBA’s tightening unchanged – UOB

Economist at UOB Group Lee Sue Ann reviews the latest labour market report in the Australian economy.

Key Takeaways

“Australia’s labour market remains tight. The seasonally adjusted unemployment rate fell to 3.4% in Oct, from 3.5% in Sep. Seasonally adjusted employment increased by 32,000 people (0.2%) in Oct, double the expectations for a gain of 15,000. But the outlook for labour demand is weakening. Labour supply, on the other hand, is increasing on the back of the rebound in migration. These factors will likely push up the unemployment rate higher in the coming months.”

“Further, real wages (adjusted for headline CPI inflation) have actually fallen 0.8% q/q, and 3.9% y/y lower, eroding consumer spending power. Indeed, we have seen a sharp decline in consumer confidence, suggesting that households’ cost-of-living pressures are increasing. Business conditions for Australian firms are also beginning to peak as the economy slows under the weight of high inflation and rising interest rates.”

“This is why we think the Reserve Bank of Australia (RBA) will soon pause in the current rate hiking cycle. The next RBA meeting is on 6 Dec, and that will be the final meeting of 2022. We are penciling in another 25bps hike, which will take the OCR to 3.10%. Thereafter, we look for a hold.”