MNI INSIGHT: RBA More Confident On Labor Market After Aug Data

--Upbeat Jobs Market Could Trigger Earlier RBA Cash Rate Move Talk

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of Australia is more upbeat over employment

than at the time of the August Statement on Monetary Policy, although

uncertainty over the job market's feed-through to inflation makes its potential

effect on the timing of the cycle's first rate hike harder to read.

     The RBA was already bullish over the labor market outlook at the time of

the September board meeting, following strong jobs data in July. Average monthly

employment growth this year has been around 17,000, fueling optimism within the

bank that the unemployment rate could fall to 5% well before its August forecast

of H2 2020.

     "Forward-looking indicators of labour demand, including vacancy rates and

survey measures of employment intentions, continued to point to above-average

growth in employment in the near term," the RBA said in its September minutes.

     --STRONG AUGUST JOBS

     Since the meeting, the August labor market survey, published on Sept 13,

has impressed the RBA as unambiguously positive. The monthly average employment

gain rose to nearly 22,000, while the participation rate of 65.7% was just 0.1

percentage point below the record and the 13.4% underutilization rate was the

lowest since May 2013.

     The RBA says its models show the non-accelerating inflation rate of

unemployment, the point below the rate of price increases tends to rise, is at

5%. If NAIRU isn't too far below 5%, there would be upside risk to the wage

growth forecast, which would be crucial for monetary policy. But based on recent

international experience it is open to the possibility that the rate could be

below 5%.

     The RBA was already slightly more positive on wage growth prospects in the

September minutes, noting its liaison had continued to point to a modest

increase in private sector earnings in coming quarters. This would be in

addition to the effects of the recent increase in the minimum wage that is

expected to boost outcomes in the September quarter.

     National Australia Bank says its business surveys for July and August

suggest monthly employment growth of 23,000 over the next six months.

     If the participation rate is unchanged, jobs growth of that magnitude could

lead to a 0.1 percentage point fall in the unemployment rate every month, NAB

said, potentially pushing the jobless rate to 5.0% by the end of this year.

     This is too optimistic for the RBA, given the spare capacity in the labor

market.

--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

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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