Chart of the Day: Here's proof that labour force growth is doomed

Despite unemployment rate falling to 2.6%.

According to OCBC, with sustained demand for manpower and tighter foreign worker policies, firms have increasingly turned to and will continue to rely on locals to fill job vacancies, supporting resident wages.

In Sep this year, the seasonally adjusted overall unemployment rate was 1.8%, down from 2.1% in Jun, while the unemployment rate for residents fell to 2.6% from 2.9% over the same period.

Here's more from OCBC:

This means that discretionary spending should continue to stay strong, which is positive for certain consumer-related and hospitality stocks.

However, the impact on these two sectors may not be substantial since core inflation is expected to be stable around 2-3% in 2014.

More intense adjustments in the labour market may occur in the next few years, due to slowing labour force growth. If productivity does not rise at the same pace, businesses are likely to pass on more of the cost increases to protect profit margins, especially with improving economic sentiment.

Possible losers include companies that are unable to pass on higher costs to consumers due to low pricing power.

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