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Latest labour data casts doubt on 2024 cuts

4 minute read

The most recent labour market data has strengthened the conviction among certain economists that the RBA will maintain interest rates at their current levels throughout the entirety of 2024.

On Thursday, the Australian Bureau of Statistics (ABS) reported that the labour market remains tight with the seasonally adjusted unemployment rate sitting at 3.9 per cent in December.

In response to the figure, which aligned with market expectations, HSBC’s Paul Bloxham stated that the prospect of rate cuts in 2024 appears unlikely.

“We see this [unemployment figure], combined with the recent monthly CPI indicator print, as supporting our view that the RBA [Reserve Bank of Australia] is done hiking and will be on hold in February,” the chief economist said.

“At the same time, although the jobs market is loosening, the economy is still close to full employment and the inflation is still well above the RBA’s 2–3 per cent inflation target band. We see them on hold for some time yet and see cuts in 2024 as unlikely,” he explained.

What stunned economists on Thursday was the sharp fall in employment, which was down by 65,000 jobs compared to the market expectation of a 15,000 gain.

However, the ABS explained that the fall in employment in December followed larger-than-usual employment growth in October and November, a combined increase of 117,000 people, with the employment-to-population ratio and participation rate both at record highs in November.

Mr Bloxham highlighted that the significant decline in employment does not indicate a sudden plunge in the job market in December. However, he acknowledged that the figures do imply a sustained and gradual easing of job market conditions, a trend that has persisted for approximately 15 months.

“All of this said, the figures still suggest a jobs market that is near, or at, ‘full employment’,” Mr Bloxham added.

Namely, he noted, unemployment is still below 4.0 per cent, while the participation rate and employment-to-population ratios are still just a touch below their all-time highs.

Similarly, Russel Chesler, head of investments and capital markets at VanEck, responded to the data convinced that “we won’t see rates coming down anytime soon”.

“In fact, we see the likelihood of a February 2024 rate rise increasing amid continuing strong employment and inflation not falling fast enough,” said Mr Chesler.

"With employment decreasing by around 65,000 people and the unemployment rate remaining at 3.9 per cent in December, the job market’s relative strength speaks to the vigour of the Australian economy despite 12 interest rate increases.”

Reflecting also on the monthly consumer price indicator which fell to 4.3 per cent for the 12 months to November, Mr Chesler judged that inflation, and particularly services inflation, will prove to be stickier than what the market anticipates.

“The RBA will be closely watching the Q4 CPI and wages growth numbers to determine the future trajectory of the cash rate,” he added.

Prior to the release of the unemployment data, Finder reported that only one in three economists expect a cash rate cut by August.

Among those confident in a cut, AMP’s chief economist Shane Oliver said: “We expect a combination of falling December inflation data, weak December retail sales, and a rising trend in unemployment to head off another rate hike in February. By June, enough evidence of weak growth and falling inflation will have accumulated to enable the RBA to start cutting rates.”

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.