Figures should indicate labour market growth

Labour market figures due out on Wednesday are likely to show the spare capacity in the market is slowly reducing, ANZ senior economist Philip Borkin says.

Employment growth should be solid. Household Labour Force Survey employment grew 0.9% in December, and like the economy itself, rebounded from weakness earlier in the year.

While indicators of firms' hiring intentions had not sent a unanimous signal since then, employment was expected to be in-line, if not stronger, than fourth-quarter growth and consistent with a "decent'' labour demand backdrop.

The far bigger question was what happened on the supply side?

It was already known the working age population increased by 0.7% in December, lifting annual growth to 2.5%, an all-time high.

Much would hinge on the participation rate, which surprisingly fell 0.3% to 68.4% in December, he said.

"We say surprising because historical correlations suggest that at times of strong labour demand, the participation rate typically rises as well, consistent with the discouraged/encouraged worker effect.''

Fourth-quarter figures conflicted with that, although the relationship was likely to be reinstated in the three months ended March with the participation rate lifting back to 68.8%.

"This should be enough to see the unemployment rate retrace some of December's fall, lifting from 5.3% to 5.5%. While some may interpret that as a softer signal, we instead see it as a confirmation with the unemployment rate trending lower and labour market spare capacity slowly reducing.''

It would be consistent with anecdotes of labour shortages becoming a much greater issue for businesses, Mr Borkin said.

With shortages in mind, wage growth figures should prove interesting.

No doubt, the overall levels would remain low, which was also importantly a reflection of low inflation.

The ANZ preferred measure, the private sector Labour Cost Index, was expected to sit at just 0.3%, or 1.7% annually.

The broader indicators, such as sectoral and regional relativities, and the distribution of changes, would be checked to see if any turn was in sight, he said.

It might not be evident in the first quarter but it might not be too far away, particularly with more firms highlighting growing cost pressures.

The Reserve Bank recently acknowledged the labour market and strong supply growth played a key role in suppressing inflation.

Any shift in labour market "slack'' would have monetary policy implications.

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