Job growth steady, but pick-up expected

Employment estimates from the Australian Bureau of Statistics (ABS) can be a bit choppy from month to month.

That's the way it goes with a monthly data series, bedevilled by survey sampling variation and seasonal adjustment problems, not to mention the normal volatility in economic activity.

But consider the pattern of employment growth over the past 12 months.

Through September and October last year, the gain in the number of people with jobs was 67,900.

In the following two months, November and December, it was 64,900.

In January and February it was 50,700.

That was followed by a rise of 54,900 in March and April, then 55,400 in May and June, then 56,000 in July and August.

Each one of those two-month intervals recorded employment growth remarkably close to the 29,100-per-month average for the year.

The bureau's trend estimates put the current monthly growth rate in employment at 2.4 per cent, while the seasonally adjusted figures so far this year suggest something closer to three per cent.

Either way it is unambiguously strong and steady employment growth.

Well, maybe not quite so unambiguously, because there is a caveat attached to this.

The trend is in reality likely to be somewhat slower than these figures suggest, because the population projections used as a basis for the labour force estimates do not fully reflect a sharp slowdown in immigration in the past year signalled by overseas travel data.

But even allowing for that, employment growth has still been solid.

The pattern in employment growth has also been consistent with its main driver, growth in gross domestic product (GDP).

The latest figures, from the national accounts on Wednesday last week, showed GDP growth of 3.3 per cent over the year to June.

That is in line with the long-run average.

The long-run average for employment growth is around 2.0 per cent.

So, allowing for a boost from the super-sized population estimates, employment growth has been consistent with the GDP numbers.

And it has been fast enough to push unemployment down.

Falling unemployment is what the Reserve Bank of Australia (RBA) refers to as "capacity pressures", the reduced supply of labour that threatens - or promises, depending on your point of view - to lift the floor under wage inflation.

That will eventually flow through into price inflation and so, in order to prevent that, the RBA will raise interest rates to slow growth in demand for labour.

But the downward trend in unemployment has flattened out this year.

That was probably a factor supporting the RBA's decision to hold the cash rate steady at 4.5 per cent since its latest increase in May.

The jobless rate averaged 5.7 per cent in the second half of last year, before falling to 5.3 or 5.4 per cent for the first four months of 2010.

It stepped down again, coming in at 5.1 per cent in three of the past four months, including August, as reported by the ABS on Thursday.

The rate of decline has clearly slowed.

But that state of affairs may not last long.

Looking at the national accounts, GDP picked up pace this year.

Annual growth of 3.3 per cent was the result of growth at an annualised rate of 2.7 per cent in the second half of last year and 3.8 per cent in the first half of this year.

That acceleration should show up in employment figures over the coming six months.

And with that pick-up in employment growth, the unemployment rate is likely to start drifting lower again.

The pause in interest rates may last a few months longer, but its days are numbered.