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Rising unemployment to leave RBA ‘cautious’

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Australia’s jobless rate increased again in November.

Australia’s unemployment rate rose by 0.1 percentage point to 3.9 per cent in November, according to data released by the Australian Bureau of Statistics (ABS) on Thursday, 14 December.

Employment increased by 61,500 people over the month, while the number of unemployed people rose by 18,800. The market had expected a gain in employment of 12,000 and for the unemployment rate to sit at 3.8 per cent.

The ABS noted that October’s unemployment rate was revised up from 3.7 to 3.8 per cent.

According to AMP deputy chief economist Diana Mousina, the jobless rate is currently tracking close to the Reserve Bank of Australia’s (RBA) forecast of 3.8 per cent on average over the December quarter.

“Today’s data demonstrates that there is some slowing occurring in the labour market. Given the rise in the unemployment rate since mid-2023, the RBA will be cautious in considering whether to increase the cash rate again when it next meets in February,” she said.

“In our view, the December quarter inflation data which is released in late January would need to show a decent upside surprise for the central bank to consider pulling the trigger again on another interest rate increase. We see interest rates on hold in Australia until June of 2024, from when we expect the start of interest rate cuts.”

ANZ senior economist Blair Chapman noted that the youth unemployment rate, which the RBA highlighted as an indicator of a slower labour market, increased to 13.8 per cent in November and was up 4.5 percentage points from its low in October 2022.

“There is no change to our RBA view off the back of these data, we see the cash rate on hold at 4.35 per cent until late-2024. The more robust labour market supports our view that the RBA will be later to ease than other central banks,” he added.

HSBC chief economist Paul Bloxham said that the loosening of the jobs market will help to reassure the RBA that they are unlikely to need to tighten monetary policy further.

“We think the hikes are done. However, given the still strong labour demand and only gradually loosening jobs market, the RBA is also unlikely to be in a hurry to cut its cash rate anytime soon,” he said.

“With inflation falling only slowly, we see the RBA on hold for some time yet. Also, keep in mind that the RBA has lifted its cash rate by less than many other central banks, including the US Fed, ECB, Bank of England and RBNZ, so, having tightened by less, there may be less need to loosen as soon as in these other cases.”

HSBC’s central case is that the RBA will not begin cutting until the first quarter of 2025.

Diving deeper into November’s labour force data, ABS head of labour statistics Bjorn Jarvis said that the combination of strong growth in both employment and unemployment saw the employment-to-population ratio return to a record high of 64.6 per cent and the participation rate reach a new high of 67.2 per cent.

“We have continued to see employment growth keeping pace with high population growth through 2023. The employment-to-population ratio has been high for a long time now, between 64.4 per cent and 64.6 per cent since February 2023, and between 64.3 per cent and 64.6 per cent for the past 18 months,” he said.

Similarly, participation continues to be high. In addition to strong employment growth over the past year, the number of unemployed people has also increased by around 81,000 people, and the unemployment rate has risen by 0.4 percentage points. However, both unemployment measures remain well below their pre-pandemic levels.”

During November, the underemployment remained at 6.4 per cent and the underutilisation rate also held steady at 10.2 per cent.

Jon Bragg

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.