Australia's jobless rate falls to an 8-month low, markets reduce February interest rate cut expectations

Image Credit: Reuters

 

Australia's unemployment rate unexpectedly fell to an eight-month low in November, while job growth continued its strong trend, indicating a labor market that is much tougher than many had anticipated.

This unexpected strength led markets to reduce expectations for a rate cut from the Reserve Bank of Australia in February, just days after the central bank unexpectedly hinted at a possible rate decrease.

The Australian dollar increased by 0.6% to $0.6409, while three-year bond futures dropped 7 ticks to 96.192. Swap markets now show a 55% likelihood of a rate cut in February, down from 68% earlier.

Data from the Australian Bureau of Statistics released on Thursday revealed that the unemployment rate fell to 3.9% in November, the lowest since March, down from 4.1% in October. Analysts had predicted a rise to 4.2%.

The participation rate dipped slightly to 67.0%, down from 67.1%.

Net job growth rose by 35,600 in November compared to October, which had seen an upwardly revised increase of 12,200. This figure surpassed market estimates for a 25,000 increase, bolstered by full-time job gains.

Softer economic figures from the recent national accounts report raised the chance for a February rate cut, but this labor market data somewhat reduces that risk, said Adelaide Timbrell, a senior economist at ANZ.

The RBA has maintained its policy for a year, believing the current cash rate of 4.35% - up from 0.1% during the pandemic - is restrictive enough to achieve its inflation goal of 2-3% while protecting job increases. Governor Michele Bullock mentioned that policymakers will monitor the jobs report along with inflation and retail sales figures before the next meeting in February.

The shift towards a softer outlook followed data showing that economic growth in the third quarter was surprisingly low, contrary to expectations for a bounce back. Wage increases have also been modest, indicating that unemployment may not have to increase further to keep inflation in check.

The ABS noted an unusually high number of individuals moving into jobs in November who were previously unemployed and waiting to start work last month. Unemployment also decreased by 27,000.

The jobs report indicated that hours worked remained unchanged in November, while the underemployment rate fell by 0.1 percentage points to 6.1%, the lowest level since April 2023.

Tapas Strickland, head of market economics at the National Australia Bank, stated that if the labor market begins to tighten again and maintains that trend, it could create challenges for the RBA's new level of confidence in its forecasts.

There is one more employment report and the Q4 CPI data ahead of the RBA's February meeting, said Strickland.

While we anticipate that Q4 CPI will be slightly below the RBA's November prediction, that alone is unlikely to lead to a rate cut in February, considering the labor market still indicates minimal urgency for the RBA to change its policy.

 

 

 

 

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.