The Australian Bureau of Statistics (ABS) has released its latest monthly labour force data, reporting a seasonally adjusted unemployment rate of 3.5 per cent, down from 3.7 per cent in January.
This follows a 0.2 per cent increase in January, which was largely attributed to seasonal factors, particularly higher levels of job transitioning.
Three of the four major banks had projected a weaker monthly result, with NAB and Westpac predicting a 0.1 per cent decrease to 3.6 per cent, while the Commonwealth Bank expected the unemployment rate to remain unchanged at 3.7 per cent.
ANZ was the only major bank to correctly anticipate a 0.2 per cent fall in the unemployment rate.
Meanwhile, the participation rate rose by 0.1 per cent to 66.6 per cent, while the underemployment rate remained stable at 6.1 per cent.
The stronger than anticipated monthly labour market figures cast doubt over expectations of a halt to the Reserve Bank of Australia’s (RBA) monetary policy tightening strategy following a raft of key indicators pointing to a weakening in domestic economic conditions.
The ABS’ latest monthly consumer price index (CPI) reported annualised inflation of 7.4 per cent in January — well below market expectations of 8.1 per cent.
This represented a 1 per cent decline on the previous month, in which annualised inflation grew 8.4 per cent.
Meanwhile, wages grew 0.8 per cent in the three months to 31 December, slowing from 1.1 per cent in the previous quarter and falling below market expectations of a 1 per cent rise.
This coincided with weakness in aggregate economic activity, with GDP growth slowing to 0.5 per cent over the fourth quarter of 2022 — below market expectations of 0.8 per cent.
The December quarter result took annualised GDP growth to 2.7 per cent.
RBA governor Philip Lowe recently confirmed the central bank was “closer to a pause”.
“We’ve done a lot in a short period of time and at some point, it’s going to be appropriate to sit still and assess the collective effects of that,” he told the AFR Business Summit on Wednesday (8 March).
Lowe said the board would carefully assess key economic data to be released ahead of the next board meeting, including monthly employment, inflation, retail spending, and business indicators.
“If collectively, they suggest that the right thing is to pause, then we’ll do that. But if they suggest that we need to keep going, then we will do that,” he added.
“So, we’ve got a completely open mind about what happens at the next board meeting.”
Adding to expectations of a monetary policy pause are mounting concerns over the stability of the global banking system following the collapse of three US banks.
The bank failures have been attributed to poor capital management, exposed by aggressive monetary policy tightening from the Federal Reserve.
Australia’s regulators, however, have stressed the recently assured markets of the stability of the financial system.
In its latest quarterly statement, the Council of Financial Regulators (CFR) — made up of the RBA, Treasury, the Australian Prudential Regulation Authority (APRA), and the Australian Securities and Investments Commission (ASIC) — said the Australian banking system is “well positioned” to withstand a global crisis, given high levels of liquidity and funding resilience supported by strict capital requirements imposed following the GFC.
“APRA, in consultation with CFR agencies, will continue to closely monitor the situation through its intensive supervision of the Australian banking system, which remains strongly capitalised and highly liquid,” the council noted.
The council also stressed credit quality remained high, with “prudent” lending standards, “strong labour market conditions”, and “high levels of accumulated savings” offsetting risks posed by elevated inflation and aggressive monetary policy tightening.
Australia’s major banks have priced in further hikes to the cash rate over the coming months, with ANZ, NAB, and Westpac projecting a terminal rate of 4.1 per cent.
Commonwealth Bank, however, has forecast one last hike from the RBA in April, taking the cash rate to a peak of 3.85 per cent.
