The key element I was looking for in today’s June quarter Household Labour Force Survey (HLFS) data was some element of consolidation following the strong March quarter result. In that sense I was pretty happy – employment rose 0.4% in the quarter following the large 1.7% increase in March. And while the unemployment rate moved higher from 6.2% in March to 6.4% in June, a higher participation rate was the catalyst which is itself a sign of improving labour market conditions.
will remember it was difficult to make sense of divergent employment data over
2012. Employment growth between the
HLFS, a survey of households, and the Quarterly Employment Survey, a survey of
businesses, was contradictory. In the
March quarter, much of that gap closed with a hefty 1.7% increase in employment
in the HLFS. My concern today was that
employment might give back some of the March quarter gain in June. In fact employment put in a reasonably robust
0.4% gain, taking the annual rate of HLFS employment growth to 0.7% in June, up
from 0.3% in the year to March.
A cursory glance
at the unemployment rate suggests an element of the weakness in the data. I take a different view. Given the increase in employment over the
quarter, the rise in the unemployment rate was driven by a blip higher in the
participation rate. I take that as
another sign of improving labour market conditions. A key challenge at this stage of the cycle is
to encourage previously disenchanted folk who have previously dropped out of
the labour market to opt back in. That
only happens when people think the chance of finding a job has improved. That’s a good sign.
Wages were on the
soft side. The private sector ordinary
time Labour Cost Index rose 0.4%. This
index is quality adjusted to make it more akin to a measure of unit labour
costs. The annual rate in that index has
now dropped to 1.7%, a continuation of the downward trend of recent quarters. The unadjusted index, an indicator of nominal
wage growth, dropped back to an annual rate of 3.0% in June from 3.3% in
March. Of course with low inflation that indicates solid real wage growth.
From the Reserve Bank's perspective what matters most is where the labour market and particilarly wage growth are heading. In that
respect we look to recent business confidence surveys and, more specifically,
employment intentions which are generally positive. That has us expecting continued employment
growth which helps underpin our forecasts of stronger consumer spending in
the period ahead and an eventual reversal of the downard trend in unit labour