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Jobs print sends mixed signal, clouds rate outlook

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By Charbel Kadib
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4 minute read

Conflicting signals from the latest labour market data have cast an added layer of uncertainty over the Reserve Bank’s next monetary policy move.

According to the latest jobs print from the Australian Bureau of Statistics (ABS), the unemployment rate fell in September, from 3.7 per cent to a near-record low of 3.6 per cent.

However, just 6,700 Australians entered the labour market – well below market expectations of 20,000.

The ABS attributed the lower unemployment rate to a reduction in the labour participation rate, which slipped from 67 per cent in August to 66.7 per cent.

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Diana Mousina, deputy chief economist at AMP Australia said overall, this latest labour print points to a broader deterioration in labour market conditions.

“Employment data can be volatile on a month-by-month basis, so we like to average jobs growth over a three-month time period and this shows that jobs growth has averaged around 23K/month which is a slowing from average monthly employment growth of 43K/month in 2022,” she observed.

“So, while jobs growth remains positive, it is slowing, which was expected given the increase in interest rates since May of last year.”

Ms Mousina also noted that given sharp growth in the working-age population, jobs numbers would need to average approximately 37,000 per month to keep the unemployment rate from ticking up over the short-medium term.

When assessing the implications of the latest jobs print on the Reserve Bank of Australia’s (RBA) monetary policy stance, she said the mixed result heightens the risk of further tightening, given it suggests the labour market remains relatively tight.

“[The] data shows that the softening in the labour market is occurring slowly,” she said.

“We expect a further deterioration in labour market conditions and a rise in the unemployment rate from here based on leading indicators of jobs growth like job advertisements, job vacancies, business hiring intentions, and applicants per advertised job, but the slower-than-expected slowing in jobs growth does mean some upside risks for near-term wages growth which could concern the Reserve Bank of Australia.”

The mixed result, Ms Mousina added, means there is now “more emphasis” on next week’s September quarter inflation print.

But she warned a further hike to interest rates would be a “policy mistake”, given the full impact of the RBA’s 400 bps in cumulative tightening has not been felt by households.

Additional tightening, she said, would heighten the risks of an Australian recession in 2024.

According to Paul Bloxham, HSBC chief economist, Australia and New Zealand, the latest jobs print has complicated the RBA’s task, particularly if continued tightness in the labour market puts upward pressure on wages.

“This is at the heart of the challenge that the RBA currently faces. The economy is moving in the right direction to achieve the RBA’s inflation target mandate over time but is it moving in that direction fast enough?” he said.

“That is, inflation has peaked, growth has slowed, and the jobs market is loosening, but is the slope of these trends sufficiently rapid?”

Mr Bloxham said the September jobs print suggests the labour market is “not loosening quite fast enough”, meaning a higher-than-anticipated CPI result would support a November hike from the RBA.

“Our central case is that a hike in November is more likely than not, although much depends on that CPI print,” he said.

Russel Chesler, head of investments and capital markets at VanEck, agrees, adding the “trifecta” of strong employment, resilient retail sales, and sticky inflation would result in a Melbourne Cup-day hike from the RBA.

“Bad news on unemployment would have been good news for inflation and rates, but with employment remaining near all-time highs we won’t see rates coming down anytime soon,” he said.

“…If inflation looks like it will hover around the last monthly annual reading of 5.2 per cent then the RBA has little choice but to hike again given its mandate,” Mr Chesler said.

“We anticipate one more 25 basis point rate hike towards the end of this year with a further rate hike not ruled out.

“All eyes will be on the September quarter CPI data due out next week. We anticipate the figures will trigger a 25-basis point rate rise in November by the central bank.”

Adding to expectations of a November hike to the cash rate is recent hawkishness in the RBA’s rhetoric.

Minutes from the RBA’s September monetary policy board meeting referenced a “low tolerance” for slower-than-anticipated progress towards the inflation target.

Jobs print sends mixed signal, clouds rate outlook

Conflicting signals from the latest labour market data have cast an added layer of uncertainty over the Reserve Bank’s next monetary policy move.

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