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RBA expected to take cautionary stance on latest jobless data

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The RBA is expected to approach the latest jobless data very cautiously.

The unemployment rate in Australia fell by 0.4 percentage points to 3.7 per cent in February, according to data released today by the Australian Bureau of Statistics (ABS).

Over the last few months, unemployment had steadily increased to 4.1 per cent, but February’s figure has reversed the clock by six months taking the jobless rate to where it was prior to the RBA’s November rate hike.

The consensus was for a jobless rate of 4.0 per cent. Last year, the Reserve Bank (RBA) governor Michele Bullock suggested that the jobless rate would need to be at least 4.5 per cent to be consistent with the RBA’s inflation target.

"With employment growing by around 116,000 people, and the number of unemployed falling by 52,000 people, the unemployment rate fell to 3.7 per cent,” said Bjorn Jarvis, ABS head of labour statistics.

Economists offered varied perspectives on the significance of the jobless rate surprise, with some highlighting that it reinforces the RBA’s cautious approach in decision making, while others believe that there are no long-term issues anticipated. Ultimately, they all agreed that further updates on the state of the labour market will be needed before making any significant adjustments to that assessment.

Anneke Thompson, chief economist, CreditorWatch, said the “unusually large drop” in unemployment will be considered carefully by the RBA.

“This data will be taken with caution by both the RBA and Federal Treasury, as both entities have been generally expecting a slowing labour market over the next six months,” said Thompson.

“Any continued strength in the labour force will likely push back the expectation of an interest rate cut to later in 2024, or even early 2025,” she added.

Similarly, ANZ’s Blair Chapman said the data reinforces the big bank’s forecast, which does not foresee a rate cut until much later this year.

Today’s numbers do reduce the possibility of an earlier start to easing, with the labour market generally stronger than expected,” Chapman said.

Our RBA view remains the same, we see the cash rate on hold at 4.35 per cent until November.”

State Street Global Markets’ head of APAC macro strategy, Dr Dwyfor Evans, termed the jobless report “extremely strong” and said that “as the jobs report is a key input into the RBA’s thinking on cash rate policy, then its reluctance to signpost easing seems justified for now”.

Deutsche Bank’s chief economist for Australia, Phil O’Donaghoe, agreed that the data serves as a timely example of the uncertain outlook emphasised by governor Bullock at Tuesday’s press conference.

“That uncertainty left the governor concluding that it is ‘too soon to rule anything in or out’. If that was true on Tuesday, it is even truer now,” O’Donaghoe said.

Just where the unemployment rate is actually sitting, and how much therefore the labour market has deteriorated from its peak around the middle of last year, will be crucial for the RBA’s policy debate,” he added.

Deutsche Bank, however, maintained its base case for the first RBA cut in August this year.

AMP’s Shane Oliver also remained optimistic, telling InvestorDaily that the jobless rate “likely reflects changed seasonal patterns around Christmas/New Year”.

“So, the RBA will be a bit cautious in reading too much into it and wait to get a clearer picture from subsequent releases,” Oliver said.

“There will be another jobs report before the next meeting in May and it’s not expected to move at that meeting anyway,” he added.

ABS data explained

The ABS explained that the increase in employment in February followed a weaker-than-usual outcome in December (-62,000), and a modest increase in January (15,000). This equates to 70,000 more employed people in February than there were in November and a growth rate consistent with the underlying trend.

The agency also clarified that the large increase in employment in February followed larger-than-usual numbers of people in December and January who had a job that they were waiting to start or to return to. This translated into a larger-than-usual flow of people into employment in February and even more so than February last year.

“In 2022 and 2023, around 4.3 per cent of employed people in February had not been employed in January. In 2024 this was higher, at 4.7 per cent, and well above the pre-pandemic average for 2015 to 2020 of around 3.9 per cent," said Jarvis.

“In contrast, we again only saw around 3.1 per cent of employed people in January leaving employment by February, which was similar to last year and has remained relatively constant over time. This shows that there is a wider gap than we would usually see between the numbers of people entering employment and leaving employment.”

Moreover, Jarvis added that, looking ahead to next month, “the number of people in February waiting to start work in March was back to around what we would usually see”.

Maja Garaca Djurdjevic

Maja Garaca Djurdjevic

Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.