Preview: Labour Force Survey — April

Australia's latest monthly employment report for April is due this morning local time (1130 AEST). Wages growth surprised a little to the upside in yesterday's report for Q1, but a 25bps rate cut from the RBA on May 20 still holds sway with markets. With core inflation back in the 2-3% target band and wage pressures having cooled substantially from their cycle peaks, a relatively calm report today likely gives the RBA the green light to cut next week.   

April preview: Calmer waters expected after recent volatility 

After a volatile start to the year that has been influenced by seasonality, increased retirements and the disruptions from ex-tropical cyclone Alfred, a more sedate read on labour market conditions is expected today. The median forecast is for employment to rise by 22.5k, with estimates ranging between 15k on the low side up to 40k top side. Employment lifted by 32.2k last time out in March. Expectations are that the unemployment rate holds at 4.1% (range: 4.1% to 4.2%), but much will depend on what happens with the participation rate, which at 66.8% is off recent record highs. 

Following back-to-back outcomes where employment undershot expectations in February and March, the question is whether we see some payback in April with an upside result. History doesn't offer much of a steer given that employment outcomes in April in recent years have been mixed. Add to this the recent volatility in the series and today's report shapes as a bit of a wildcard. My guesstimate is for a 35k increase in employment.  

March recap: Employment rebound falls short after February shock     

Employment increased by a net 32.2k in March (full time 15k/part time 17.2k), a decent result in isolation but short of the 40k rise expected after February's shock 57.5k decline. Across the first quarter of the year, employment was subdued rising by just 6.5k - its weakest quarterly result since Q3 2021. 

The national unemployment rate was little changed, though it was rounded up in reporting to 4.1% in March from 4% in February. Nonetheless, unemployment remains historically low and has averaged 4.1% over the past year. Meanwhile, the levels of underemployment at 5.9% and underutilisation at 9.9% have actually declined on 12 months ago, confirming this remains a robust labour market. 

Perhaps the most significant surprise in March came on the supply side. The participation rate held at an unchanged 66.8%, the level down from record highs (67.2%) at the start of the year on the back of a wave of retirements. A decline in the size of the labour force appeared to weigh on hours worked in February (-0.4%), while in March hours worked fell further (-0.3%) with the disruptions caused by ex-tropical cyclone Alfred in Queensland (-3.8%) playing a role. 

Australian housing finance -1.6% in Q1

The Australian mortgage market cooled in early 2025 despite the March quarter seeing the first RBA rate cut since the pandemic. Both the value of lending (-1.6%) and loan volumes (-3.5%) contracted in the March quarter, posting their largest declines in 2 years. The weakness was driven by the owner-occupier segment, but investor activity also softened. 

 

The total value of lending commitments fell by 1.6% in the March quarter to $85.6bn, the sharpest decline in the series since Q1 2023. Despite this, commitments still rose by 14.2% over the year. A sharp slowing occurred in the mortgage market following the RBA's tightening cycle from May 2022 onwards, with activity troughing in early 2023. Activity has been rebounding over the past couple of years, but it was a slow start to 2025 despite a widely anticipated RBA rate cut.  

In the latest quarter, commitments to the owner-occupier segment were down 2.5% to $53.2bn (13.1%yr), with upgraders falling by 2.6% ($37.2bn) and first home buyers contracting by 3.2% ($15.4bn). Meanwhile, investor commitments were 0.3% lower at $32.4bn. 

In terms of volumes, the total number of loans written fell by 3.5% across the quarter to 127.2k, backsliding to levels seen around 12 months earlier. Within this, loan volumes fell in the owner-occupier segment by 3.4% to 79.9k, and by 3.7% to 47.2k for investors. Although this implies investor activity remains elevated, it is a different story for owner-occupiers where loan volumes are in line with pre-pandemic levels. Upgraders saw a 3.8% fall (50.8k) with first home buyers down 4.2%, bringing volumes back to early 2024 levels.   

Australian Q1 Wage Price Index 0.9%; 3.4%yr

Australian wages growth came in a touch above expectations rising by 0.9% in the March quarter, lifting the annual pace from 3.2% to 3.4% to halt a near year-long slide in that measure. Markets quickly faded a hawkish repricing of May rate cut expectations on the back of the upside print as annual wages growth was in line with RBA forecasts. New enterprise bargaining agreements coming into effect in the public sector were the main driver of wages growth in the quarter. That reaccelerated annual growth in public sector wages to 3.6%Y/Y while wages growth in the private sector held at an unchanged 3.3%Y/Y pace.  

The Wage Price Index (WPI) is one of Australia's main indicators of wage inflation that tracks the movement in base wages for a fixed basket of jobs in the labour market. In the latest quarter, the WPI rose by 0.9% at the headline level, a touch above the 0.8% rise forecast by markets and up from a 0.7% lift in the previous quarter. As a result, annual wages growth firmed from 3.2% to 3.4%, its first rise since the June quarter in 2024; however, this is still well down from the cycle peak of 4.3% reached in late 2023, with the slowdown reflecting reduced tightness in the labour market and lower inflation outcomes feeding through to the wage-setting process. In 3- and 6-montha annualised terms, wages growth is tracking at 3.7% and 3.3% respectively, momentum that looks broadly consistent with the 2-3% inflation target, with the RBA's usual caveats around productivity growth returning to trend growth of around 1%. 

For the March quarter, the key movement came in the public sector. Public wages lifted by 1% in the quarter. As the chart below shows, quarterly increase of that magnitude were commonplace in the sector 15-20 years ago but in more recent times that is a strong increase. Annual growth rebounded from 2.9% to 3.6%. 

In today's release, the ABS attributed the strength in public sector wages growth to new state-based enterprise bargaining agreements (EBAs) coming into effect. Accordingly, EBAs made the largest contribution to quarterly wages growth, shown in the grey bars below. Individual agreements (green bars), typically the most responsive method of pay setting to labour market conditions, made only a modest contribution to wages growth.

Over in the private sector, wages growth was 0.9% in the March quarter and 3.3% through the year, an unchanged pace. The quarterly figure included a government-supported boost over and above existing awards to workers in the aged and child care sectors.   

Private sector wage pressures peaked towards the end of 2023, easing over the ensuing period in line with reduced tightness in the labour market. Nonetheless, wages growth is still materially higher than in the pre-pandemic cycle where annual growth was in the 2s as unemployment was left to run in the 5-6% range, well above the low 4s where it sits today.  

The underlying dynamics in the private sector included a lift in the average size of pay increase, up from 3.7% to 4.3% - its fastest pace in a year - but that applied to a narrow base as only 15% of jobs saw a pay rise in the March quarter. The bulk of jobs see pay rise in Q3, post the end of the financial year.   

Preview: Wage Price Index Q1

One of Australia's main indicators of wages growth is published today, with the Wage Price Index (WPI) series for the March quarter out this morning local time (1130 AEST). An RBA rate cut at the May meeting is widely considered a lock after core inflation returned to the 2-3% target for the first time since 2021 in the March quarter. In addition to Thursday's employment report, signs that wage pressures are easing in a labour market past peak cycle tightness would only shore up that expectation. 

Q1 Preview: Moderate wages growth expected 

In today's report, headline wages growth of 0.8% is expected in the March quarter, with estimates ranging from 0.7% to 1.0%. If met, that figure would match the outcome from the same period 12 months ago. On that basis, the annual pace of wages growth would hold at 3.2%. The cooling inflation backdrop points to downward pressure on wages growth; however, the RBA's forecasts in its February Statement on Monetary Policy had the pace ticking up to 3.4% by mid-year and staying there through year-end. Today's report is likely to either confirm the RBA's view or prompt a downward revision in new forecasts that will be prepared for the Board to consider at the May meeting. An upside surprise on wages growth (1%q/q or above) would be against the trend in the data but would drive a hawkish repricing of expectations for a May cut.        

A Recap: Wages growth ends 2024 at 2-year lows

Wage pressures in the Australian labour market cooled to their slowest pace since 2022 as the WPI eased to 0.7% in the December quarter and 3.2% through the year, down from 3.6% previously. After peaking a year earlier at 4.2% wages growth would go on to slow through 2024 as the unemployment rate drifted up and lower inflation outcomes flowed through to the wage-setting process. These factors were reflected in the Fair Work Commission's decision to grant a 3.75% increase to the minimum wage and awards, well down from the 5.75% rise approved in its 2023 review. 

Slower wages growth is occurring in both major sectors of the labour market. In the private sector (accounting for around 85% of total jobs), wages growth was 0.7% in the December quarter - its slowest quarterly rise in nearly 3 years - with annual growth softening from 3.5% to 3.3%, a low since the middle of 2022. 

Although accounting for the bulk of employment growth since mid 2023, public sector wages growth continues to soften. Following a subdued lift of 0.6% in Q4, wages growth in the sector retraced sharply from 3.7% to 2.8% through the year, its slowest pace in 2 years. 

Macro (Re)view (9/5) | Uncertainty abounds

Equities drifted lower in the US and most of Europe this week going into weekend talks in Switzerland between the US and China on trade. Following their recent rebound, positive developments towards a winding back of tariffs between the world's two largest economies can unlock further equity upside and put a bid back into a weak US dollar. Progress is also crucial to giving the Fed and its peers more visibility over the economic outlook. After a quiet week in Australia, the data ramps up again with updates on wages growth and the labour market coming through next week. 

In the US, an uneventful Fed meeting saw rates left in the 4.25-4.5% range, an unchanged stance since December last year. Much was made of the fact that Chair Powell repeatedly stressed in the post-meeting press conference that uncertainty over the outlook was the foremost challenge that policy-setting FOMC was dealing with. Despite warning signs in the soft data (sentiment and activity surveys) and a contraction in Q1 GDP driven by increased imports to avoid tariffs, the FOMC sees underlying robustness in the US economy. The overall position, then, is that policy is seen as 'well positioned to respond in a timely way' to what unfolds. A Fed running the main risk of being late to deal with economic and labour market weakness and having to cut an at accelerated pace later on down the line is reflected in the US dollar index trading at a material discount to its levels at the start of the year and since the liberation day tariff announcements. 

This week's Bank of England meeting was viewed by markets in a slightly hawkish light as developments failed to endorse a recent shift in pricing for a more aggressive easing path. On top of this, a flat reaction greeted the US-UK trade deal announced by President Trump due to the 10% baseline tariff on UK goods entering the US remaining in place. In London, the BoE cut by 25bps to 4.25% as expected, with Bank Rate now down by 100bps over the course of the easing cycle following a sequence of quarterly cuts since August last year. 

Going into this week's meeting, markets anticipated a faster pace of easing may be signalled, pricing 3 cuts into the curve over the next 4 meetings in response to downside risks to growth from global trade uncertainty. However, that was ultimately tempered by the Monetary Policy Committee vowing to maintain a 'gradual and careful' approach to further easing, and also by a hugely divergent vote pattern. The decision was voted through by the MPC on a narrow 5-4 majority, with the minority split 2-2 between a larger 50bps cut (Dhingra and Taylor) and leaving rates unchanged (Pill and Mann).

In the post-meeting press conference, Governor Bailey highlighted that disinflationary progress remained intact and was expected to continue, and that global growth would be weaker with trade upended by tariffs. These factors will keep the BoE on an easing path, but questions remain around how deep the easing cycle will be and the pace of rate cuts. New forecasts in the BoE's May Monetary Policy Report were of little weight given the elevated level of uncertainty around the outlook both in the UK and offshore. Ultimately, the BoE is in wait-and-see mode and is likely to stick to its pattern of quarterly rate cuts for now. 

Australian dwelling approvals -8.8% in March

Australian dwelling approvals saw their sharpest fall in 21 months posting an unexpectedly large decline of 8.8% in March (vs -1.3% expected). Unit approvals (-14.6%) pulled back from their recent uptrend, while house approvals (-4.2%) retraced to early 2024 levels. As seen by today's report, higher interest rates - despite the RBA now easing monetary policy - and capacity pressures in the construction sector - legacies coming out of the pandemic - continue to weigh on home building activity.    

Headline approvals were down 8.8% in the March to a total of 15.2k as house approvals fell by 4.2% (8.9k) and unit approvals slumped by 14.6% (6.3k). Those was the largest declines for headline and house approvals since July 2023 and January 2024 respectively. 

Still, headline approvals increased over the first quarter of the year to 48.6k, a rise of 3.8% from the final quarter of 2024. An 11.3% surge drove unit approvals to their highest quarterly total (21k) since Q3 2021, strength centred largely in high-rise projects in Sydney and Melbourne. This helped to offset a 1.2% fall in house approvals - their second consecutive quarterly decline - to 27.6k. House approvals for Q1 were only marginally above their pre-pandemic cycle low in late 2019, despite the ensuing surge in population growth.

Approvals for home alterations (-0.7%m/m) remain at elevated levels at just below $1.2bn in the latest month, a rise of 2.9% on 12 months ago. A combination of strong demand - supported by rising housing prices - and cost increases sees the value of alteration work approved on a monthly basis running substantially above pre-pandemic levels.   

Macro (Re)view (2/5) | Light at the end of the tunnel?

Reports that the lines communication for trade negotiations between the US and China may be starting to open and solid US data supported risk-on sentiment this week. Fed rate cut expectations for the remainder of the year were pared back modestly from 4 rate cuts through the remainder of 2025 ahead of next week's FOMC meeting. In the markets, equities advanced broadly, and the US dollar weakened on most of the major crosses - the JPY the exception as the BoJ left rates steady while lowering their growth and inflation forecasts in response to the uncertainty around global trade. Domestically, an RBA rate cut in May has been locked into the curve following encouraging disinflationary progress in Q1.      

Underlying US economic conditions appeared to remain robust going into the uncertainty of administration's liberation day tariff announcements. While US GDP posted its weakest outcome in 3 years contracting by 0.1%q/q (2.1%Y/Y), that was driven by a pull-forward of imports (9%q/q), which contributes negatively to growth calculations, ahead of the impending tariffs. Despite the headline fall in growth, domestic demand was still running at solid pace (0.6%q/q, 2.9%Y/Y), supported by resilient household consumption (0.4%q/q, 3.1%Y/Y) amid tanking sentiment. Meanwhile, the labour market also remained solid as nonfarm payrolls posted a 177k increase in April, outperforming the 138k consensus and holding the unemployment rate at 4.2%, even with a slight rise in participation to 62.6%. The unknown remains around inflation. The Fed's preferred core PCE deflator eased closer to target falling from 3.0% to 2.6%yr in March, but the effects of tariffs will likely push that figure higher. 

In Europe, GDP growth picked up in the March quarter lifting to 0.4% from 0.2% in the prior quarter, holding the year-ended pace at 1.2%. Stronger growth into the optimism around the outlook for the region on the back of the shift in Germany's fiscal regime has sent the trade weighted euro to all-time highs in recent weeks and supported equity gains. But with the uncertainty around global trade set to weigh on euro area growth, the ECB is expected to cut rates again in June. Meanwhile, April's preliminary inflation readings showed the headline gauge holding at 2.2%yr but rising from 2.4% to 2.7%yr on the core measure.  

Australia's March quarter inflation report shored up pricing for an RBA rate cut in May to 3.85%, with additional easing lowering the cash rate to around 3% by year-end. Seasonality and the unwinding of government subsidies for electricity bills pushed up inflation in the March quarter, with headline CPI lifting from 0.2% to 0.9% and the core or trimmed mean measure up from 0.5% to 0.6%, both outcomes 0.1ppt above consensus. Still, annual inflation is within the RBA's 2-3% target band, holding steady at 2.4% in headline terms and the core rate easing from 3.2% to 2.9%, the latter at its slowest pace since late 2021. Additionally, there are encouraging signs that the broader disinflationary process is well entrenched. The momentum in core inflation annualises at 2.5% over the past 6 months, the midpoint of the RBA's 2-3% target. Meanwhile, price pressures in stickier services categories have clearly slowed. Services inflation eased from 4.3% to 3.7% year-on-year, its slowest pace in almost 3 years. For more on the Q1 CPI report please see my review here. Also in Australia this week, retail sales volumes were subdued in Q1 (see here), and the trade surplus widened to $6.9bn in March (see here). 

Australian retail sales 0.3% in March; Q1 volumes 0%

Australian retail sales posted a modest 0.3% rise in March (4.3%yr), slightly missing expectations (0.4%) as the disruptions of ex-Tropical Cyclone Alfred dented sales in Queensland (-0.4%). After rising by 1.3% through the back half of last year, growth in underlying volumes - sales adjusted for inflation - stalled in the March quarter, well short of the 0.3% consensus forecast. Consistent with the Q1 CPI report released earlier this week, retail prices ticked back up in the quarter rising by 0.7%. A soft picture of consumer demand in today's report keeps the RBA on track to cut in May. 

Retail sales nationally increased by 0.3% for the month in March. This was driven by food sales (0.7%) on stockpiling effects in preparation for ex-Tropical Cyclone Alfred, which affected south east Queensland and northern New South Wales. Supermarket sales rose by 0.9% nationwide on the back of a 1.9% surge in Queensland - the fastest rise in the state since the Covid restrictions in 2021. 

But despite this boost, sales in Queensland actually fell in March (-0.4%) - the only state that saw sales decline in the month - due to the overall disruptions caused by the cyclone, shuttering businesses and keeping people at home. 

 

Back to a national perspective, in addition to the rise in food sales, category gains were also posted in clothing and footwear (0.3%) and other retailing (0.7%). Turnover was flat in household goods (0%) while it declined in department stores (-0.5%) and at restaurants and cafes (-0.5%).  

Following the gain in March, retail turnover was up by 0.7% across the first quarter of the year - a solid gain but down from the increases in the low 1s in the past two quarters (1.1% in Q3 and 1.3% in Q4). However, unlike in those two quarters where underlying volume demand increased (0.5% in Q3 and 0.8% in Q4), it stalled (0%) in this latest quarter. That left the growth in nominal sales in Q1 being driven entirely by a 0.7% uplift in prices. Higher prices were driven by food (1%q/q) and dining out (0.8%q/q), consistent with the Q1 CPI report. 

Volume growth in Q1 was weighed by a sizeable decline in household goods (-1.9%), its weakest outturn in nearly two years, and from households pulling back from dining out (-0.1%). These outcomes offset gains that came through in department stores (2.3%), clothing and footwear (1.5%), other retailing (0.7%) and food (0.4%).    

Australia's trade surplus widens to $6.9bn in March

After narrowing to a 4½-year low in February ($2.9bn), Australia's goods surplus widened to a 13-month high of $6.9bn in March, more than double the $3.1bn consensus estimate. This was driven by the fastest rise in exports (7.6%) in nearly 3 years, boosted by US exports to front run the Trump administration's trade tariffs. Meanwhile, imports posted their sharpest decline in 6 months (-2.2%). Separately, the ABS reported that export prices rose by 2.1% in the March quarter while import prices lifted by 3.8%, with Australian dollar depreciation a key factor.         

The goods surplus defied a narrowing trend to widen to its highest level in 13 months at $6.9bn in March. On the back of this result, the 3-month average for the goods surplus lifted off a 54-month low ($4.3bn) to $5bn. Cumulatively, the goods surplus was $15.1bn across Q1, moderating from the prior quarter ($16.3bn).    

Exports accelerated by 7.6% for the month in March to $45.3bn, rising by 2.4% over the first quarter of the year. Notably, US-bound exports lifted by 8.6% to $5.6bn, surging during the opening months of 2025 ahead of the Trump administration's impending tariffs. 

In March, exports were led by growth in non-rural goods - a category dominated by the major resource exports - and non-monetary gold. Non-rural goods rose by 8.6% in the month to post their fastest rise since April 2022, with large increases coming through in iron ore (11.6%) and coal (10.7%). The ABS's trade price release today reported that economic stimulus measures in China and weather-related disruptions in Australia put upward pressure on commodity prices. A continuation of safe-haven demand amid volatile market conditions underpinned another steep rise in non-monetary gold (25.9%).

Imports were down 2.2% in March to $38.4bn but still lifted by 3.8% across the first quarter. In the latest month, weakness came through in all major categories, pulling back after gains in February: consumption goods (-0.7%), capital goods (-5.1%) and intermediate goods (-2.1%).  

Australian Q1 CPI 0.9%, 2.4%Y/Y

Australia's key March quarter CPI outcomes surprised slightly to the upside of consensus, but today's report has kept pricing for an RBA rate cut in May well anchored. Although quarterly headline CPI ticked up from 0.2% to 0.9% (vs 0.8% expected) as government electricity rebates unwound, the annual rate held at 4-year lows of 2.4% (vs 2.3%). Meanwhile, a softening in the trimmed mean CPI from an upwardly revised 3.3% to 2.9% year-on-year (vs 2.8%) confirmed core inflation is now back inside the RBA's target band and at its slowest pace since late 2021.   

Headline CPI in the March quarter rose to 0.9%, up from increases of 0.2% in each of the back two quarters of 2024. Government subsidies to reduce cost-of-living pressures started to wear off in the first quarter, pushing inflation higher. 

Electricity prices were the key driver, measured to have risen by 16.3% in the quarter, after declining by more than 25% over the previous two quarters on the combined effects of federal and state government rebate schemes. Rises in health (2.9%q/q) and education costs (5.2%) reflecting seasonal factors also put upward pressure on inflation. The other key price increases were in groceries (1.2%) and fuel (1.9%), with rents also up (1.2%) following changes to the federal government's assistance scheme.

 

At the other end of the scale, weaker demand saw items including international holiday travel (-7.6%), furniture (-5.5%) and AV equipment (-1.2%) pushing down on inflation in Q1. 

Away from the quarterly price movements, the key development was that price pressures across the core of the basket continue to ease. Trimmed mean or core inflation slowed from 3.3% to 2.9% year-on-year, a low since Q4 2021. In 6-month annualised terms, core inflation is sitting right on the midpoint of the RBA's target band at 2.5%, its softest run rate going back to Q3 2021. 

To further back up an easing underlying inflation dynamic, services inflation - a key area of the CPI basket the RBA has been tracking - is also slowing. In the latest quarter, services inflation was 0.8% - a slight uptick from Q4 (0.7%) - but the annual pace fell from 4.3% to 3.7%, its slowest since Q2 2022. 

Preview: Australian Q1 CPI

Australia's CPI inflation report for the March quarter is due from the ABS this morning (1130 AEST). With further disinflationary progress expected to have occurred in early 2025, markets go into today's report priced for a second 25bps rate cut for the easing cycle from the RBA at the next meeting on May 20, after the cut in February.    

March quarter preview: Disinflationary progress to continue

Although government rebates on electricity bills are unwinding, disinflationary progress still likely continued in the March quarter. After consecutive increases of 0.2%, quarterly headline CPI is forecast to tick back up to 0.8% in Q1 (range: 0.7-0.9%); however, with a higher outcome in the base period falling out of the annual calculation, the year-on-year pace is expected to ease from 2.4% to 2.3%. Core or trimmed mean CPI is anticipated to firm from 0.5% to 0.6% quarter-on-quarter, but as with headline CPI, base effects see the consensus figure lower at 2.9% year-on-year from 3.2% last time out. 

The main source of volatility in Q1's inflation outcomes is likely to be in electricity prices. Timing differences between when the various federal and state government rebates schemes have been applied in each state makes the movement in electricity prices in the quarter difficult to predict. Measured electricity prices rose by around 6% over January-February in the monthly CPI series; assuming that rate of increase held in March, electricity prices could rise in the order of 12% across the quarter. 

Another area to watch is food prices after ex-Tropical Cyclone Alfred hit south east Queensland and Northern New South Wales in March. Both fruit and vegetable prices lifted by 3.3% in January, movements that were only partially reversed by declines in February. Meanwhile, new dwelling costs are also key, particularly for core inflation. Although modest, home building costs started showing declines over January-February. 

  

A recap: Inflation ends 2024 at 3-year lows

A disinflationary impulse renewed by government subsidies saw both headline and core inflation end 2024 at their lowest rates in at least 3 years. Headline CPI was 0.2% in the December quarter and 2.4% year-on-year, down from 2.8% previously. Trimmed mean CPI was 0.5% in the quarter, coming in from 3.5% to 3.2% through the year. With annual inflation running either side of the top of the target band (2-3%), the RBA went on to cut rates early in the new year.  

Government rebates on household electricity bills and lower fuel prices have been the key items that renewed the disinflation impulse, which had essentially stalled by the middle of last year. Additionally, new housing costs were also contributing less to headline inflation as developers had increased incentives following the effects of higher interest rates in weakening demand. 

Although inflation in services categories has moderated it remains the major driver of inflation. Input cost pressures, including from labour costs, were a key cause of rising services inflation, with strong demand allowing firms to pass through those increases in higher prices. However, a weaker demand backdrop has seen many firms now having to absorb more of the increases in their input costs in profit margins.