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How will the RBA react to the latest labour force data?

By Reporter
3 minute read

Reactions to how the latest labour force data could impact the RBA’s February decision are mixed.

Australia’s unemployment rate held at 3.5 per cent in December, according to the Australian Bureau of Statistics (ABS), in line with the revised jobless figure for the month of November.

“With employment decreasing by around 15,000 people, and the number of unemployed increasing by 6,000 people, the unemployment rate remained steady at 3.5 per cent,” said ABS head of labour statistics, Lauren Ford.

“The seasonally adjusted participation rate fell 0.2 percentage points to 66.6 per cent in December, back to around where it was in October. Despite this slight fall from its historic high, it finished the year 0.8 percentage points higher than its pre-pandemic level.”

While acknowledging that the latest data release came in weaker than expected, economists at ANZ reiterated their view that the labour market will remain very tight over 2023.

“We still expect the cash rate to reach 3.85 per cent in May. Next week’s Q4 CPI data will be more important for the RBA’s February meeting, but today’s data will not convince the RBA to pause so soon,” they said.

In contrast, HSBC chief economist Paul Bloxham said, today’s figures continue to give the central bank options when it meets in early February”.

“Solely focusing on the high inflation numbers would likely see them hike further yet,” he said.

However, Mr Bloxham noted that the sharply weakening housing market, clear global disinflationary trends, signs that the jobs market may be turning, and the fact that much of the effect of the RBA’s 300 basis points of hikes so far has yet to fully feed through to the economy, could see the RBA choose to pause.

“Next week’s Q4 CPI figures will be important to watch and given it’s a close call, the December retail and building approvals, due the following week, could also play a role,” he added.

‘Tight labour market’ persists

The decrease in employment followed an increase of 58,000 people seen in November, with average monthly growth of around 40,000 people between the months of August and November.

Seasonally adjusted monthly hours worked decreased by 0.5 per cent for the second consecutive month after peaking in October last year.

“The falls in employment and hours worked in December followed strong growth through 2022, with an annual employment growth rate of 3.4 per cent and hours worked increasing by 3.2 per cent,” said Ms Ford.

“The strong employment growth through 2022, along with high participation and low unemployment, continues to reflect a tight labour market.”

The seasonally adjusted underemployment rate lifted 0.2 percentage points to 6.1 per cent, which is 2.7 percentage points below the pre-pandemic rate.

Meanwhile, the underutilisation rate, which combines the unemployment and underemployment rates, rose 0.3 percentage points to 9.6 per cent in seasonally adjusted terms, sitting 4.4 percentage points below March 2020.