MNI ANALYSIS: Labor Data Makes Mkt Too Dovish On RBA Hike Bet

--RBA Likely To Upgrade Labor Mkt Forecast In November

By Sophia Rodrigues

     SYDNEY (MNI) - Risk of the Reserve Bank of Australia hiking its cash rate

ahead of current market expectations has increased in the wake of the better

than expected August jobs survey that may trigger an upgrade in the Bank's jobs

and inflation outlook.

     Financial markets are currently pricing the first RBA hike of this cycle in

2020, but above-trend growth, a solid labour market and a declining Aussie

dollar could prompt earlier action from the central bank, who are already

guiding that the next move in rates will be higher. 

     Thursday's jobs report was positive throughout, likely outperforming the

RBA's own upbeat view on the labor market laid out in the August Statement on

Monetary Policy. 

     --JOBS, PARTICIPATION RISE

     Data published by the Australian Bureau of Statistics Thursday showed the

economy added more jobs than expected in August -- an increase of 44,000

compared with MNI's median forecast of a 15,000 rise. The jobless rate stayed at

5.3% for the second straight month, the lowest level since November 2012, even

with labor participation rate at near-record high of 65.7% (record high is

65.8%). 

     If participation declines in coming months, it raises the prospect of the

unemployment falling to 5.0% ahead of the RBA's expectation of H2 2020, boosting

the chances of accelerating wage growth and the outlook for household

consumption and inflation.

     Even if higher participation ahead prevents the jobless rate from falling

further, it would likely see an overall rise in household income, also

supportive for the RBA's outlook for household consumption and, eventually,

inflation.

     August's report showed the economy has added jobs at an average monthly

rate of 21,900, solid, but below the stellar numbers seen in 2017. Put in

context, total employment has risen by 587,000 in the last 20 months. Prior to

that it took around 35 months for the labor market to record job gains of that

magnitude. Before that it took 49 months.

     --DIMINISHING SLACK

     Another positive take from the latest data is that slack in the labor

market is diminishing, although still at an elevated level. Labor

underemployment fell to 8.1% in August, the lowest since May 2014 and the labor

underutilization rate fell to 13.4%, the lowest since May 2013.

     In the August Statement on Monetary Policy, the RBA said leading indicators

suggest that employment will continue to grow faster than the working age

population. 

     The RBA was unsure whether the demand will be met by those currently

unemployed leading to a reduction in the unemployment rate, those currently

employed working more hours, or an increase in the participation rate. 

     It appears that all the three factors are in play currently, suggesting the

risk to the RBA's forecast is clearly to the upside.

     Adding to the RBA's optimism is second quarter GDP growth which, after

taking into account upward revisions, was higher than expected. The Australian

dollar has declined in recent weeks, despite elevated commodity prices. This

would provide a boost to growth and inflation. 

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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