Recent research by the National Australia Bank (NAB) sheds light on shifting labour market dynamics in both the United States and Australia, offering important insights for Australian SMEs.
As the global labour market undergoes crucial transformations, small and medium-sized enterprises (SMEs) in Australia are closely following developments. Findings reveal that labour market dynamics in both the United States and Australia are showing signs of adjustment, offering potential insights and implications for Australian SMEs.
Adjusting labour markets
Labor markets are undergoing noteworthy transformations in the United States and Australia, holding significance for SMEs. The data from the United States, often a source of inspiration for Australian SMEs, indicates a distinct deceleration in job growth. Encouragingly, this slowdown is not accompanied by alarming layoffs or a surge in unemployment. Indicators like job openings and quit rates have returned to more typical levels. Particularly noteworthy is the job openings-to-unemployed individuals ratio, which has improved to 1.5, approaching its pre-pandemic ratio of 1.2. Importantly, this moderation in the US labor market hasn’t caused a sudden spike in unemployment or layoffs; layoff rates remain below pre-pandemic levels. Instead, the deceleration is attributed to a return to standard hiring patterns.
Parallel trends in Australia
Australia’s labor market exhibits a similar trend. Layoff rates and transitions from employment to unemployment are currently below historical averages, while transitions into employment have resumed usual patterns. This suggests not only that Australian employers are retaining their workforce but also that there is a strong demand for labor. These developments provide optimism for Australian SMEs as they navigate labor market challenges.
The idea that labor markets can rebalance without a significant spike in unemployment is particularly reassuring. While wage growth in the US has moderated, the Federal Reserve anticipates further moderation in labor market conditions to achieve sustainable inflation targets. This progress surpasses what headline indicators might imply, with the US labor market closely resembling its 2019 state in many aspects.
Australian SME economic update – Q2 2023 GDP growth
Shifting our focus to the Australian SME landscape, the most recent GDP report, attributed to NAB’s research, paints a nuanced picture of the economic terrain. Australia’s GDP has expanded by 0.4% quarter-on-quarter, with a year-on-year growth rate of 2.1%.
While this growth figure may appear slightly lower than initial expectations, it aligns closely with consensus forecasts and represents a modest improvement over the Reserve Bank of Australia’s August Statement on Monetary Policy (SMP), which had projected a mere 0.2% growth. Furthermore, the upward revision of the first quarter’s GDP (now at 0.4%) suggests that the Australian economy has maintained its momentum.
Economic fortification
Despite a minor deceleration in consumption growth, Australian SMEs can take comfort in the fact that the economy has been strengthened by government infrastructure investments and increased business spending. This GDP release reinforces broader economic trends observed in other data.
Discretionary spending and goods consumption (excluding motor vehicle purchases) continue to decline, while spending on services remains relatively stable. Additionally, the report reflects the persistent effects of post-pandemic dynamics, with certain components, such as trade and business inventories, displaying higher-than-usual volatility.
Monetary policy and future outlook
In the short term, the latest GDP result is unlikely to significantly impact monetary policy in Australia. The Reserve Bank of Australia (RBA) remains confident that higher interest rates are effectively curbing demand and fostering a more balanced economy. Today’s data further supports this perspective. On the nominal side, price pressures remain elevated, but broader wage measures remain within the RBA’s acceptable range. Nonetheless, assessing productivity remains a challenge, particularly on a quarterly basis.
As Australian SMEs chart their course for the future, they should anticipate below-trend growth over the next two years, primarily driven by weak household consumption and a softening in dwelling investment. While the influence of the pandemic is gradually waning, ongoing improvements in trade and a shift in consumption patterns are expected, potentially leading to continued volatility in measured economic output in the near term.
For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets.
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