3 May 2010

More jobs not expected despite higher demand for labour

8:01 pm on 3 May 2010

Economists expect unemployment to have fallen in recent months, but say it will take a while for the slack in the labour market to be picked up.

ANZ economist Mark Smith expects employment data - to be issued on Tuesday - to reverse four consecutive quarters of decline, and rise 0.2%.

And he's picking unemployment data - due to issued on Thursday - to have slipped 0.2% percent to 7.1%.

Mr Smith says unemployment has climbed from 3.5% before the recession to about 7.3% at the end of last year - and it could have been a lot worse had hours and wages not been not cut during the downturn.

He says that flexibility now means there's plenty of slack in the labour market.

Hours likely to be increased first

As demand for labour returns, Mr Smith says it's expected that companies will increase hours for employees in the first instance, rather than taking on additional employees.

Although demand for labour will increase, he says there will be no tangible effect on employment levels for some time to come.

Mr Smith says recent labour data has been volatile, and the Reserve Bank will be looking at capacity pressures when considering when to raise interest rates from record lows.

He says one-off increases in inflation are expected later this year, and the Reserve Bank will want to ensure that wage inflation remains contained.

The Labour Cost Index and Quarterly Employment Survey for the March quarter are due to be released on Tuesday and the Household Labour Force Survey, also for the March quarter, comes out on Friday.