Reserve Bank of Australia deputy governor Michele Bullock says Newcastle is a "prime example" of a region experiencing severe labour shortages but foreshadowed unemployment would have to rise to help control inflation.
Ms Bullock, who is a potential candidate to replace RBA governor Philip Lowe this year, told an industry gathering in Newcastle this week that the city's jobless rate was "considerably lower" than it was before the COVID-19 pandemic.
An RBA analysis puts the Newcastle unemployment rate at 3 per cent, below the national 3.6 per cent jobless figure and well below what the bank regards as the 4.5 per cent "full employment" rate required for a healthy balance between the labour market and inflation.
"Newcastle is a prime example of a region that has undergone a considerable tightening in the labour market," Ms Bullock told an Australian Industry Group lunch in Newcastle.
She said the city's unemployment rate "translates to an additional 25,000 residents in this area having work" compared with before the pandemic.
"Messages we hear through the bank's liaison program in the Newcastle area are also consistent with what we are hearing elsewhere in the country: despite the slowing in economic growth, businesses are facing labour availability constraints stemming from a lack of suitable labour, high levels of job switching and a shortage of housing," she said.
The historically low Newcastle jobless rate may not last long if the RBA achieves its aim of cooling off consumer demand and limiting wage rises.
One successful Hunter businessman told the Newcastle Herald last week that he expected the "lay-offs to start in October".
Ms Bullock's appearance in Newcastle follows more than a year of RBA interest rate rises designed to bring down inflation to the bank's target range of 2 to 3 per cent by mid-2025.
The bank forecasts the national unemployment rate to rise to 4.5 per cent by late 2024.
"In other words, the economy would be closer to a sustainable balance point," Ms Bullock said.
She said "credible projections that the unemployment rate would rise to 15 per cent" due to the COVID-19 pandemic had not eventuated due to a "large" monetary and fiscal policy response.
"A particular focus of the fiscal policy response was to keep employees attached to their jobs, even if there was little work for them during periods of lockdown.
"With the benefit of hindsight, however, some argue that policymakers here and around the world took out too much insurance.
"The pace and extent of the recovery has been remarkable. Labour market outcomes over the past three years have consistently exceeded the expectations of the bank and other forecasters."
Ms Bullock said the share of the Australian population in employment had never been higher and almost all the gains in employment since the onset of the pandemic had been in full-time employment.
"As has been the case in previous economic cycles, it has been people on lower incomes and with less education who have benefited the most from the strong labour market conditions.
"The labour market for younger people, whose opportunities for employment tend to decline most during recessions, has also improved by much more than at the aggregate level."
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