Australia | Jul 09 2007
By Chris Shaw
Figures to the end of May showed the Australian unemployment rate was 4.2%, down from 5.1% at the beginning of 2006, while the employment-to-population ratio stood at a record 62.1% as employment expanded by 3.1% for the year to May 31, well above the historical average increase of 2.0%.
The buoyant conditions have led to questions as to whether the recent performance is sustainable given the likelihood of further increases in interest rates and the possibility of flow-on effects across the broader economy, but according to Westpac senior economist Bill Hanlan the outlook remains positive.
He suggests the employment-to-population ratio is likely to post further gains, which implies further strength in employment generally. There are a couple of reasons for his view, the first being momentum in a few key segments of the labour market such as business services and goods production has been strong and should continue to be positive as business services in particular are linked to the global economic cycle.
The second reason is the overall strength of the labour market is providing a boost to household incomes, which is both offsetting the increases in interest rates and supporting higher levels of consumer spending.
This then flows through into other sectors of the economy and the labour market, as Hanlan notes the higher levels of discretionary spending have generated strong growth in employment in the accommodation, café and restaurant sector.
A further benefit has yet to fully flow through as Hanlan points out the goods distribution sector has performed relatively poorly in light of the strength of consumer spending. He expects this will correct itself in coming months, leading to solid increases in employment in the sector and so supporting the general employment picture in Australia.
On Hanlan’s estimates employment growth this year should again come in around the 3.0% mark, with any risk weighted to the upside in his view. This should keep Australia’s employment rate around current low levels, especially given the potential for a boost from any upswing in the housing sector, solid corporate performance and still robust global growth.