Australia’s jobless rate rises in January even as employment booms
AUSTRALIA’S unemployment rate ticked higher in January even though job creation handily outpaced forecasts, data showed on Thursday, a mixed outcome that does little to clarify the outlook for further cuts in interest rates.
Figures from the Australian Bureau of Statistics showed net employment rose 44,300 in January from December, when it jumped 60,000. That was well above market forecasts for a 20,000 rise, and all of the gains came in full-time employment, which climbed by 54,100.
Annual jobs growth accelerated further to a blistering 3.5 per cent, more than twice the pace seen in the United States.
The jobless rate still nudged up to 4.1 per cent, from 4.0 per cent, as the workforce expanded by even more than the increase in jobs. This was largely due to more women looking for work and finding jobs, which lifted the participation rate to a record high of 67.3 per cent.
The ABS noted a pattern had emerged since the pandemic where an unusually large number of people were not employed in January but expected to start a job in the near future.
This phenomenon tended to see the unemployment rate rise in January, only to fall back in February.
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“The uptick in joblessness overstates the extent to which the job market loosened last month,” said Abhijit Surya, a senior economist at Capital Economics.
“The tight labour market reinforces our view that the RBA will deliver a shallow easing cycle.”
The Reserve Bank of Australia this week trimmed its cash rate by 25 basis points to 4.10 per cent, but cautioned further easing could not be guaranteed given upside risks to inflation.
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It noted the strength of employment was a hurdle to further cuts since it could stoke cost pressures and prevent core inflation from slowing to the middle of its 2-3 per cent target band.
Core inflation ran at 3.2 per cent in the December quarter and is expected to slip under 3.0 per cent this quarter. The RBA now expects it to bottom out at 2.7 per cent and above its 2.5 per cent target, in large part due to the “tight” labour market.
However, the main inflationary effect of strong employment is typically through rising wages, and they are actually heading in the opposite direction.
Figures released on Wednesday showed wages rose by a surprisingly subdued 0.7 per cent in the December quarter, pulling annual growth down to 3.2 per cent and a long way from its 2023 peak of 4.2 per cent.
“This will keep the RBA alive to the prospect the labour market may not be as inflationary as their forecasts imply as they weigh the case for further easing,” said Taylor Nugent, a senior markets economist at NAB.
“We assess the labour market is near balance and forecast the unemployment rate will rise only modestly.”
The moderation in wages is one reason markets are still pricing in a 75 per cent chance the RBA will cut rates again in May, after skipping a move at its April meeting.
The easing cycle is expected to be shallow, with rates finding a floor at 3.6 per cent by year-end. REUTERS
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