Bond futures are fully priced for another half point increase to the RBA’s 0.85 percent spot rate in July and a 12 percent chance of a 0.75 percentage point increase. Markets are pricing in a spot rate of 1.9 percent for August.
Three-year bond yields shot up 16 basis points to 3.8 percent after the jobs report. They stabilized at 3.7 percent, after gaining 7 basis points in the session. The 10-year yield also rose by 7 basis points to 4.1 percent.
Brendan Rynne, KPMG’s chief economist, said the underlying force of the economy was dragging additional workers into the labor market, with the employment rate increasing 0.3 percentage points to a record 66.7 percent in May.
Due to the increase in participation, the unemployment rate remained stable at its 48-year low of 3.9 percent instead of falling further.
“The key question now is whether the strength of the labor market will be maintained over the coming period of higher interest rates, higher labor costs and higher inflation,” said Dr. rynne.
the reserve bank expects unemployment to fall to 3.7 percent by the end of the year.
JP Morgan economist Tom Kennedy said participation growth was particularly strong among young workers, with the proportion of people aged 15 to 24 in employment or seeking employment reaching a multi-decade high of 71.9 percent.
The female employment rate rose to 62.3 percent in May, just below recent record highs.
Bjorn Jarvis, ABS’s head of labor statistics, said it was the seventh consecutive monthly increase in employment.
“Average employment growth over the past three months (30,000) continues to outperform the pre-pandemic trend of around 20,000 people per month,” said Mr Jarvis.
“In addition to the continuing trend of increasing employment, we are seeing a relatively stronger growth in the number of hours worked. We saw that last year, before the outbreak of the delta.”
RBA ready to raise rates
Shane Oliver, chief economist at AMP Capital, said the strong jobs report meant the RBA was on track to hike rates again by 50 basis points in July.
“We are still seeing the peak in the spot rate at around 2.5 percent, but it could come earlier given the RBA’s shift to a more aggressive approach,” Oliver said.
Tapas Strickland, the National Australia Bank’s markets and economics director, said the back-to-back job numbers deserved a 50 basis point hike in interest rates.
“There is nothing in this report to stop the RBA from raising interest rates by another 50 basis points in July and August, as the NAB believes, as it continues to reveal a tight labor market and interest rates well below the RBA’s nominated 2, stay 5 percent. neutral rate,” he says.
RBC Capital Markets has revised its rate forecast after the release of the jobs data to include three rate hikes of 50 basis points in July, August and September, after which the target for the spot rate would be 2.35 percent.
“The risks remain on the upside, and we suspect that RBA itself currently thinks it will have to enter unequivocally restrictive territory, 3 to 4 percent cash [rate]to curb inflation.
“However, our thesis is that a deteriorating consumer will prevent the RBA from rising further by the end of 2022,” RBC analysts said.
Economists say the Fair Work Commission’s minimum wage ruling on Wednesday could quickly spill over to most of the workforce related to company agreements due to more deals under negotiation, putting additional pressure on the RBA to to increase rates.
Morgan Stanley economist Chris Read said the decision to raise minimum wages by 4.6 percent to 5.2 percent would have a benchmark effect for broader wage expectations and negotiations.
“There are about 40 percent of workers who have agreements and these agreements hold wage growth rates for several years, which would normally imply a relatively gradual change in overall wage growth,” said Mr Read.
“However, data suggests that outdated agreements are currently being renegotiated, which could mean faster pass-through (and lock-in) of higher wage outcomes.”
Morgan Stanley, which cites continued wage growth as a “key driver” of its forecasts, now expects inflation to reach 7.4 percent by year-end and the RBA to hike 50 basis points in both July and August. realize.
Underutilization hits 40-year low
Another sign of strength is that the unemployment rate has fallen 0.4 percentage points to 5.7 percent. It means that the underutilization rate, which includes both the unemployed and the unemployed, has fallen to 9.6 percent, the lowest level since April 1982.
Commonwealth Bank economist Belinda Allen said the decline in underemployment was the “striking feature” of May’s figures.
“The drop has been remarkable and amplifies both labor demand and the labor shortage in Australia since the pandemic,” said Ms Allen.
In research released Thursday, RBA economists Susan Black and Emma Chow said the tight job market encouraged more workers to change jobs, particularly in high-skill positions where labor demand was high.
“Workers remain optimistic about the employment outlook, with the proportion of workers expecting to change jobs/seek another job within the next year is near the highest level since 2008,” wrote Ms. Black and Ms. Chow.
Economists expect the pace of job growth the period ahead will slow, amid a dwindling pool of unemployed people available to take on a job. The number of unemployed rose slightly to 548,100 in May, but is down 22.1 percent during the year.
The strong increase in employment is the result of continued growth in job openings as companies struggle to find enough workers to meet strong domestic demand.
There were a record 423,500 job openings in February, equivalent to 3 percent of the workforce.
Spending seems to end in May, despite continued decline in consumer confidence while households struggle with falling real wages and higher interest rates.
Data from Mastercard, compiled for the Australian Retailers Association, showed retail sales were up 7.8 percent over the year to May.
#Redhot #job #market #push #RBA #harder #rates