Employment rates are ‘tracking sideways’, experts say, on January data

A rise in unemployment has sparked debate, with experts saying it’s too early to say if higher rates are costing jobs.

Unemployment ticked up 0.2 percentage points to 3.7 per cent in January after estimates of employed people fell by about 11,000, the Australian Bureau of Statistics said on Thursday.

It was the second straight month that unemployment rose amid rapidly rising interest rates, though joblessness remains at historic lows and participation is still close to record levels after COVID-19.

Some economists said the rise in jobless Australians is yet another sign of a slowing economy amid nine consecutive interest rate increases and a pull back in consumer spending over December.

But others, pointing to larger-than-normal numbers of workers on holiday in early January, said it’s too early to draw any firm conclusions because seasonal quirks are distorting the figures after the pandemic.

It’s important because the trajectory for the jobs market will, in part, determine how many more interest rate hikes by the RBA are needed.

Reserve Bank of Australia boss Philip Lowe said this week that retaining the historic jobs gains of the pandemic years remains a key priority.

Cracks in the labour market?

Indeed APAC economist Callam Pickering said January’s job data showed higher interest rates and inflation has “started to weigh on labour market conditions”.

“While the labour market remains extremely tight by historical standards, conditions are likely to ease over the course of the year,” he said.

Both Treasury and the RBA expect the jobs market to go backwards in 2023 and 2024 as higher interest rates cool demand.

But BIS Oxford head of macro-economic forecasting Sean Langcake said it’s hard to draw firm conclusions about whether that’s happening.

He said the latest data shows a big part of the rise in unemployment is being driven by people who expected to return to work quite quickly.

“It’s people that are what they [the ABS] deem to be job attached,” Mr Langcake said.

“People might not have been working when the ABS took their survey, but they expect to start work again very soon … a lot of people are going to step back [into work] in February.”

Mr Langcake said the jobs market is “tracking sideways” in a historically strong position, with unemployment remaining incredibly low.

Jobs ‘normalisation’

EY chief economist Cherelle Murphy said the ABS data suggested a “normalisation” in labour market conditions after a period of “exceptionally strong” jobs growth.

“It is by no means a sign of labour market weakness, or that the days of rising wages growth are over,” she said.

All eyes are now on the February jobs figures, which economists said will provide a much better indication of whether the jobs market is slowing in response to higher rates, as anticipated.

The timing is important because the RBA will look to momentum in the jobs market when it decides how many more rate hikes will be needed to push inflation down from 30-year highs.

Dr Lowe said this week his measure for a “soft landing” from the fastest rate hikes on record would be that unemployment remained below pre-COVID levels of 5.3 per cent.

RBA and Treasury forecasts currently predict that will be the case, with the jobless rate set to rise to about 4 per cent over 2023 and 2024, but Dr Lowe has conceded it’s a “narrow path”.

Mr Langcake said the RBA is in a “really tough position” because it will need to make rate calls in 2023 without a full picture of how the jobs market is changing, with a risk of going too far.

“There’s a risk they’ve overdone it by the time they finish hiking and we get a bit more [unemployment],” he said.

“But the jobs market is still in a remarkably strong position.”

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