Unemployment has peaked early, thanks largely to the glacial pace of wage growth.
RBA assistant governor for economics Christopher Kent says the jobless rate is not expected to rise substantially from July’s 6.3 per cent.
“We expect the unemployment rate to be little changed from recent levels over the next 18 months or so, before declining in 2017,” he told the Economic Society of Australia in Brisbane.
Just three months ago the RBA was forecasting the jobless rate would peak at 6.5 per cent in mid-2016.
Dr Kent said the economy is showing signs of adjustment amid a downturn in the mining investment boom, and minuscule wages growth has also helped support employment.
“Even though low wage growth works to constrain the growth of incomes for those who are employed, it also supports incomes by encouraging more employment than otherwise,” he said.
Wages growth has slowed to its slowest pace in nearly 20 years, according to official figures published on Thursday.
“The behaviour of wages during the current episode has been comparable to the experience around the recession,” Dr Kent said.
But this isn’t necessarily such a bad thing, he said, as the jobless rate could have been even higher if wage growth had not slowed in response to rising unemployment.
Unemployment has also held relatively steady because of a decline in population growth, due to weaker net immigration, especially from New Zealand, Dr Kent said.
The economy is also being helped by labour intensive industries and a red hot housing market.
The services sector is doing a lot of the heavy lifting, with an increasing share of our economic activity coming from this area, he said.
“About half of us are now employed in the service industries. This has increased from about 45 per cent two decades ago,” Dr Kent said.
Low wage growth combined with a tumbling Australian dollar is also helping businesses to be more competitive, he said.