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Economists: NAB Survey Signals Stabilization In Australian Labor Market

Employment intentions among Australian businesses picked up further in June, suggesting stability in the labor market ahead, economists said citing the survey data from the NAB monthly business survey for June.

The employment sub-index of the survey climbed to 5 from 2 in May and -2 in April, results of the survey showed on Tuesday.

"Based on historical relationships, the survey suggests that employment will likely grow around 20k per month over the next 6 months," the NAB survey report said.

The latest survey was conducted between June 18 and 28, covering 400 non-farm business firms.

The overall business confidence index of the NAB survey dropped to +2 from +7 in June, giving up most of its post-election surge.

The employment sub-index rebounded to be around twice its long-run average. However, the employment index is close to its long-run average, in trend terms, the NAB said.

"For now, labor market developments appear to be the key driver of monetary policy, with weak wage growth seeing both slower household income growth and weak inflationary pressure," NAB Group Chief Economist Alan Oster said.

"Both a tighter labor market and higher capacity utilization would see inflation pressures build - so we will continue to watch to see if the improvement in these measures is sustained."

In June, the capacity utilization rate climbed to 82.1 percent from 80.9 percent in May.

Westpac economist Andrew Hanlan said the 20k per month employment growth that the survey projected, would keep the unemployment rate broadly steady, provided the participation rate remains flat.

"We expect jobs growth to slow given recent weakness in activity and in profits," Hanlan said.

The current trends in the labor market, as suggested in the NAB survey, are tentative signs of stabilization in the labor market owing to prospective policy support, and perhaps political factors post-election, J.P. Morgan economist Ben Jarman said.

If these are sustained, the economist expects them to arrest the upward impulse to the unemployment rate of recent months.

"It is early days to call this, and for the capacity utilization gains to appear more durable, trading conditions need to do better in the second half of the year," Jarman added.

Above average employment rates were seen in mining, construction, wholesale and transport & utilities, while below-average rates were seen in manufacturing and retail, the NAB survey showed.

Demand for labor is set remain sluggish in manufacturing and around average in services sector, while mining companies are likely to hire more given their strong profitability, the report added.

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