By guest contributor Frank Uhlenbruch, investment strategist, Australian Fixed Interest team, Janus Henderson Investors
While weather events created some volatility in the data, it appears as though the Australian economy is poised to expand by around 2.50% to 2.75% over 2017. Monetary policy settings remained accommodative with the Reserve Bank of Australia (RBA) leaving the cash rate unchanged at 1.50%. The Bank’s concerns about medium-term financial stability were somewhat allayed by macro-prudential measures designed to tighten lending standards and limit growth in riskier types of lending.
The main positive surprise on the macro side was the strong rebound in the labour market after a lacklustre period over 2016 and early 2017. Over the 12 months to September 2017, employment was up 3.1%, with full time jobs growth accounting for most of the gain. The rebound in the labour market helped close the gap between persistently elevated levels of business conditions and subdued levels of consumer confidence.
Given the strength in jobs growth, some fall in the unemployment rate could have been expected over the year. Instead the unemployment rate has largely tracked sideways as labour market strength enticed workers back into the labour force, resulting in a lift in the participation rate. Going into the end of 2017, historically low rates of wages growth and elevated levels of underemployment suggest that the labour market still has some slack in it.