Australia: Labour market the most positive in years - TDS

Australian employment in October underwhelmed at +3.7k (TD +30k, mkt +18.8k) but full-time employment at +24.3k and upward revisions to Sep were bright spots as the 5.4% unemployment rate is the lowest since February 2013, notes the research team at TDS.

Key Quotes

“However, due to a lack of acceleration in wages growth, this employment report doesn't move the needle for the RBA’s neutral stance, and is neutral for the markets.”

“Implications

• This employment report confirms that 2017 is the year of strong labour market dynamics. Jobs created to date are 80% full-time, hence the acceleration in hours worked.
• The Phillips curve tells us that wages growth should follow, in turn boosting core CPI. So far this year that pass-through is feeble at best. As we saw yesterday, wages growth is off the floor but far from accelerating. As we also noted yesterday, perhaps the upbeat business community (as represented by the monthly NAB business survey) finally offers higher wages in the coming months. The next wages report isn’t released until 21 February, adding to RBA patience in the first few months of 2018.
• Our base case remains for +25bp in May 2018 unless wages and/or CPI materially surprise to the upside (or downside!).
• OIS at present is only 14% priced for a rate hike in May 2018, but after soft retail sales, underwhelming core CPI and barely rising wages growth, it is difficult to argue with pricing just now.”