Undeniable strength in the Australian labour market has dampened hopes of an interest rate cut by Christmas.
Surprisingly strong job creation, an unemployment rate that’s tracking sideways and record-high workforce participation all point to a labour market that’s proving resistant to sluggish economic conditions.
The jobless rate held steady at 4.1 per cent in September, in line with the Australian Bureau of Statistics’ downward revision to the August outcome.
About 61,400 jobs were added to the economy in September, which was more than expected, dampening the prospect of the Reserve Bank cutting rates in 2024.
And they were mostly full-time appointments, reversing the part-time dominance seen in August.
Betashares chief economist David Bassanese said the report highlighted the ‘remarkable ability’ of the Australian economy to ‘keep finding employment for the still rapidly expanding supply of new workers’.
Reserve Bank governor Michele Bullock (above)
‘Low unemployment at a time of strongly rising labour supply suggests a good matching of worker skills with available employment opportunities – we are finding the workers for the available job opportunities, such as in the fast-growing care sector,’ he said in a client note.
Usually, a weaker labour market is the expected consequence of slowing the economy with higher interest rates to fight inflation.
The Betashares economist was predicting a February start to a new cycle of central bank interest rate cuts, based on the way the economy was unfolding.
‘Today’s employment report does not rule out rate cuts, though it does rule out near-term rate cuts due to an overly weak economy,’ he said.
Rather than being forced to start easing to support an ailing economy, he said, the Reserve Bank of Australia would be able to stay laser-focused on inflation.
The September quarter consumer price index, due at the end of the month, would be the key data point heading into the next cash rate meeting in November.
The Commonwealth Bank is sticking to its December rate cut prediction of a 25 basis point rate cut, although its head of Australian economics Gareth Aird conceded Thursday’s jobs data did not strengthen that case.
‘Our call for the RBA to commence normalising the cash rate in December with a 25bp rate cut looks less likely as a result of (Thursday’s) jobs figures,’ he said in his latest update.
Despite the setback, the bank’s economic team remains of the view that inflation should cool fast enough for the central bank to cut at its final board meeting for 2024.
Undeniable strength in the Australian labour market has dampened hopes of an interest rate cut before the end of this year.
Employment Minister Murray Watt celebrated the creation of one million new jobs since the Albanese government took office.
‘What we’re managing to achieve at the moment, despite a slowing economy and despite worldwide tensions, is jobs up, inflation down, all while delivering cost-of-living relief and turning the big deficits into Labor surpluses,’ he told reporters on Thursday.
Opposition employment spokesperson Michaelia Cash said new job creation was dominated by the public sector while the private sector fell behind.
‘The Albanese government is all about increasing the size of the public sector, whilst attacking the private sector with red tape and uncertainty,’ she said.
CBA is the only Big Four bank predicting a rate cut in 2024.
The futures market sees four rate cuts in 2025, after Reserve Bank Governor Michele Bullock in recent weeks ruled out any relief this year.
Cuts next year, as predicted, would see the RBA cash rate fall from an existing 12-year high of 4.35 per cent to 3.35 per cent for the first time since March 2023.
But it won’t undo the Reserve Bank’s 13 hikes in 2022 and 2023 that were the most aggressive since the late 1980s.
Underlying inflation in August fell to 3.4 per cent but it was still above the RBA’s 2 to 3 per cent target.
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