The Australian Bureau of Statistics (ABS) has reported that Australia’s unemployment rate rose to 3.7 per cent in January, up from 3.5 per cent at the end of last year.
While most economists had been expecting that the jobless rate would remain steady, the ABS labour force data instead showed an unexpected increase for the month after employment decreased by 11,500 people and the number of unemployed increased by 21,900 people.
"This was the second consecutive monthly fall in seasonally adjusted employment but followed very strong growth during 2022,” ABS head of labour statistics Bjorn Jarvis noted.
Reacting to the ABS figures on Thursday, HSBC chief economist Paul Bloxham said that they suggested that Australia’s jobs market is beginning to loosen.
“In an economy where demand has been running ahead of supply, inflation is well above target and this is clearly feeding through to a pick-up in wages growth, a loosening of the labour market is what is needed. The economy has been too hot, and this is a clear sign that it is starting to cool,” he stated.
“For the RBA, we think this will be seen as good news, as it provides some confirmation that their monetary tightening is not just slowing growth but is taking some heat out of the exceptionally tight labour market. Taken at face value, today's figures also suggest that the unemployment rate has troughed a little earlier than the RBA had been forecasting.”
Mr Bloxham has predicted that the central bank will likely stop lifting rates once inflation has convincingly peaked and the unemployment rate has convincingly troughed.
“Today’s figures certainly add to the case that the unemployment rate is likely to have troughed. However, inflation has not peaked yet in Australia,” he suggested.
“We get a monthly reading of the new CPI indicator on 1 March, ahead of the RBA’s next board meeting, which will clearly be important to watch. However, it is a volatile and new indicator. The quarterly CPI is not released until 26 April.”
HSBC’s central case is for the RBA to deliver another 25 basis point hike at its next meeting on 7 March before electing to pause the following month.
“But the lack of an observed peak in CPI inflation and the timing of the quarterly release means a risk that they could deliver another hike in April before choosing to pause,” Mr Bloxham added.
‘No cause for alarm’
Despite the labour force data coming in weaker than expected, ANZ senior economist Catherine Birch said that the bank did not believe this was cause for alarm.
“We continue to expect the labour market will remain very tight through 2023,” she said.
“Labour demand remains very strong. There were 444,200 job vacancies nationally in November (around double pre-pandemic) and almost 90 per cent of firms couldn’t hire enough workers in Q4 according to NAB.”
Ms Birch suggested that strong seasonal factors appeared to have contributed to the weakness in the January data, with a return to solid employment growth now anticipated in February.
“The ongoing recovery in population growth via net migration will be a tailwind as it improves the matching of workers to vacant jobs and lifts demand growth, all else equal. We do not expect unemployment to rise rapidly,” she added.
Due to the persistence of inflationary pressures, ANZ has revised up its forecast for the cash rate to reach 4.1 per cent in May, up from an expected peak of 3.85 per cent. The bank said that it does not believe the weaker January labour market data will derail the RBA’s hiking cycle.
In his reaction to the labour force data, Treasurer Jim Chalmers said that the outcome was “completely consistent” with what Labor’s first budget anticipated in October and what was anticipated by the previous government’s budget in March.
“We have been expecting an uptick in the unemployment rate as the economy slows a bit as the obvious consequence of a slowing global economy mixed with the impact of interest rate rises here in our own economy,” he said.
“This is the expected outcome, the expected consequence, of global turbulence and rising interest rates playing out in our economy and our current expectation, the expectation of the Treasury and the Reserve Bank, is that our economy will slow a bit more and unemployment will tick up a bit more in the coming months.”
Labour force data details
According to the ABS, the seasonally adjusted participation rate fell 0.1 percentage point to 66.5 per cent in January, down from a high of 66.8 per cent in mid-2022.
Seasonally adjusted monthly hours worked decreased by 2.1 per cent, which the ABS said reflected a higher-than-usual number of people taking annual leave in January.
“Early January is the seasonal peak in people taking annual leave. As in 2021 and 2022, January 2023 again saw more people than usual taking annual leave,” said Mr Jarvis.
“Around 43 per cent of employed people worked reduced or no hours because they were on leave, compared with around 41 per cent of employed people over the same period before the pandemic.”
The seasonally adjusted underemployment rate remained at 6.1 per cent, 0.4 percentage points below January 2022. The under-utilisation rate, which combines the unemployment and underemployment rates, rose by 0.2 percentage points to 9.8 per cent in seasonally adjusted terms, 0.9 percentage points lower than in January last year.
Along with a larger-than-usual increase in unemployed people, the ABS also observed a larger-than-usual rise in the number of unemployed people who had a job to go to in the future.
“January is the most seasonal time of the year in the Australian labour market, with people leaving jobs but also getting ready to start new jobs or return from leave,” said Mr Jarvis.
“This January, we saw more people than usual with a job indicating they were starting or returning to work later in the month.”