Australian employment growth undershot expectations in October, for the first time in a while.

At 3,700, the increase was well below the 18,000 gain that had been expected by economists, and the lowest monthly total since September 2016.

Still, beyond the headline miss, the news was mostly good.

All of the jobs created were full-time positions, and total hours worked increased. And September’s employment gain — originally reported at 19,800 — was also revised higher to 26,600.

Unemployment also declined to 5.4%, leaving it at the lowest level since January 2013.

It was a solid if not spectacular outcome, and one that fits will leading labour market indicators that continue to point to solid job gains ahead.

Now that they’ve had time to look “under the hood” of the October report, it’s time to see what Australia’s economic community have made of it, particularly in terms on what it means on the outlook for wage growth, something that has reemerged as a concern following Australia’s weak Q3 wage price index report released earlier this week.

Let’s find out.

Felicity Emmett, ANZ Bank

The labour market is clearly in better shape than it has been for some time, with a further gain in employment and another fall in the unemployment rate in October. We expect the expansion in jobs growth to continue — albeit at a more moderate pace — over the near term given the solid prospects for economic growth.

While monthly job gains are likely to slow from the recent rapid rate, our ANZ labour market indicator points to further falls in the unemployment rate. Rising employment will support household income, but as yesterday’s weak Wage Price Index shows the reduction in spare capacity in the labour market is not yet feeding into stronger wages growth. Further inroads in the unemployment and underemployment rates are clearly required before we see a material upswing in wages growth.

Tapas Strickland, National Australia Bank

For NAB, the unemployment rate is key given it has been relatively sticky against very strong employment growth to date. Today’s numbers align with forward indicators that suggests the unemployment rate will continue to head lower and be within touching distance of the RBA’s NAIRU estimate by mid-2018.

NAB expects the labour market to be sufficiently tight enough by mid-2018 to give the RBA confidence that the wages and inflation cycle is turning up. Nevertheless, the RBA will likely need to see initial signs of wages rising to be confident on this score and the experience of the US will prove instructive on this. If this occurs, it would place the RBA in a position to begin removing some monetary policy accommodation in place in the second half of next year.

Diana Mousina, AMP Capital

The strength in the labour market over the past year despite a broadly constrained economic environment might look a little strange. We think that employment growth has held up so well because wages growth is low. Low wages growth has allowed unit labour costs for businesses to decline and allow firms to increase employment. This scenario also helps to explain the continuing divide between good business confidence and weak consumer sentiment.

With the unemployment rate continuing to track lower, it is now starting to approach its potential level (just under 5%), or the range where the labour market is considered to be in “full employment”. But this low unemployment rate is not leading to higher wages because there is still some excess capacity in the labour market, with underemployment still elevated (people wanting to work more hours). Although this will probably start to wind down with hours worked looking much stronger now, and are up by a healthy 3.4% over the past year.

The recent run of Australian data has been largely negative so the strength in the employment data has been keeping pricing for a potential Reserve Bank rate hike alive. We think that the weakness in the recent run of data is a clear signal that rate hikes are firmly off the table for now. While we think that the RBA will have room to raise the cash rate in late 2018 or early 2019, the low inflation backdrop, a slowing housing market and concerns around the consumer, the risk now is with an RBA rate cut.

Paul Dales, Capital Economics

This easing in jobs growth is probably just payback from the incredibly strong run over the past year rather than anything to lose sleep over. After all, for the first time since 1993/94, employment has now risen for 13 consecutive months.

The 4,500 decline in the size of the labour force, which may have partly been due to some former Toyota and Holden employees retiring, meant that the unemployment rate continued its steady downward trend by falling from 5.5% to 5.4%. That leaves it just below the RBA’s forecast of 5.5% for the next two years and continues the recent run of pleasant surprises.

As yesterday’s release of the wage price index for the third quarter showed, the tighter labour market has not boosted wage growth. This presumably partly explains why retail sales growth has slumped in recent months. Of course, it usually takes one to two years for a tightening in the labour market to translate into faster wage growth. But the lesson from overseas is that even if the unemployment rate in Australia were to fall further, wage growth still won’t rise much.

Henry St John, JP Morgan

While only one month’s data, the latest print potentially suggests that this dynamic is running out of some steam as we head towards year-end. However, it will take several months of data for the picture to become clear.

Another interesting aspect to today’s data was the decline in the unemployment rate. We have put more stock in this measure — rather than jobs growth — as a true reflection of the state of the labour market. Indeed, our expectation for 2018 is that the unemployment rate will track a 5.50% to 5.75% range, as domestic activity fails to show sufficient uplift necessary to produce a meaningful move lower in the unemployment rate.

One month’s data doesn’t make a trend, but the path of this indicator of labour market capacity will bear close watching in coming months. In the interim, the RBA will be heartened by a further decline in the unemployment rate, particularly given that a weakening labour market poses the most obvious risk to fragile household balance sheets.

Callam Pickering, Indeed

The Australian labour market has been hot throughout 2017 posting some of the strongest gains we’ve seen in years. But the latest set of data, covering October, was certainly more mixed though nothing to be concerned about.

We had anticipated that employment growth would begin to moderate towards more sustainable levels. The Australian economy simply isn’t big enough to sustain employment growth of nearly 40,000 people a month as was the case between March and September this year. So we weren’t surprised or alarmed by the weaker result in October.

There is a lot of good news in this release: the unemployment rate dipped to 5.4% and the number of unemployment people fell to its lowest level in four years. Full-time employment continues to make strong gains — having accounted for almost 85% of employment growth over the past year — and hours worked across the economy is rising at its fastest pace in almost seven years.

Nevertheless, there remains a high degree of slack across the labour market, despite recent improvements. This helps to explain the ongoing weakness in wage growth and the cautiousness of Australian households. Together the data indicates that the economy still has a long way to go before the Reserve Bank will consider tighter monetary policy.

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