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No ‘smoking gun’ for December hike after unemployment uptick

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Expectations that the Reserve Bank will hold rates at its final meeting of the year have been bolstered by the latest labour force data.

Recent data releases don’t give the Reserve Bank of Australia (RBA) an impetus to increase interest rates next month, a range of senior economists have said.

These include the latest labour force data, which on Thursday (16 November) showed that Australia’s unemployment rate rose by 0.2 percentage points to 3.7 per cent in October.

“The RBA expects the unemployment rate to average at 3.8 per cent in the December quarter, so today’s figures are still in line with that if the unemployment rate increases again in November and December, which we think is likely,” commented AMP deputy chief economist Diana Mousina.

“Today’s figures don’t provide enough of a ‘smoking gun’ for a follow-up rate hike at the December board meeting and that seems to also be the market reaction as the Australian dollar fell after the data was released.”

Ms Mousina noted that the third quarter wage price index (WPI), which was up 4 per cent on an annual basis, was also “more or less in line with expectations”.

“Another rate hike is still a possibility for February 2024 after the next round of quarterly inflation data, but we think the macroeconomic environment will be weaker by February and allow the central bank to keep interest rates on hold, until the start of rate hikes around mid-2024,” she predicted.

October’s uptick in unemployment came despite a stronger than expected increase in the number of employed people over the month. The ABS reported that employment rose by 55,000, while the number of unemployed people rose by 27,900. The participation rate lifted 0.2 percentage points to 67 per cent.

“The RBA is likely to look through the strength in today’s employment numbers, which were driven by a part-time increase of 37,900,” said ANZ senior economist Blair Chapman.

“Increases in employment for those aged over 65 years (19,600) and 2024 years (16,600) suggest that the Voice referendum, held during the survey reference period, contributed to the growth in employment, as well as hours worked and the participation rate.”

Mr Chapman pointed out full-time employment has fallen by 29,800 people since June, which he said suggests that the labour force is continuing to moderate.

“The youth unemployment rate, which the RBA has been pointing to as one of the indicators they use to assess labour market spare capacity, increased to 9.2 percent in October, its highest level since December 2021,” he continued.

“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.”

CreditorWatch chief economist Anneke Thompson similarly believes it’s unlikely the RBA will opt for another upward rate move in December.

“Today’s data provides further evidence of continued weakening in the economy, and while this weakening is happening slowly, the unemployment rate gives the RBA very little reason to increase the cash rate further at the last board meeting of the year in December,” she said.

Summing up the week’s key data, Commonwealth Bank economist Stephen Wu said: “We would view both the wages and jobs numbers as broadly in line with the RBA’s forecasts. As such, the RBA will be focusing on the inflation data ahead of the December board meeting.”

The monthly consumer price index (CPI) indicator will be released by the ABS on Wednesday, 29 November, less than a week before the RBA’s final meeting of the year on Tuesday, 5 December.