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Strong jobs and wages growth signal another rate hike: Economists

A pay bump for Australia' lowest paid workers could cause small businesses to close and axe jobs, the Australian Chamber of Commerce and Industry has warned.

A pay bump for Australia' lowest paid workers could cause small businesses to close and axe jobs, the Australian Chamber of Commerce and Industry has warned. Photo: TND

The Australian jobs market has continued its resilient run in the face of slowing economic growth, with economists saying a Christmas rate hike could follow after strong employment and wage gains this week.

An estimated 55,000 jobs were added across the economy in October, according to Australian Bureau of Statistics (ABS) figures published on Thursday, with the unemployment rate ticking up to 3.7 per cent on the back of a decline in the participation rate.

It comes after ABS figures on Wednesday revealed the historically tight jobs market has delivered the fastest nominal wages growth since 2009 at 4 per cent.

Both figures will give the Reserve Bank food for thought ahead of a highly anticipated December meeting, with some economists expecting a second rate hike in as many months in a bid to further cool the economy and curb inflation.

APAC economist Callam Pickering said it would be unusual for the RBA to pass through a single rate hike (in November) without another in December, making it a live possibility.

“The continued tightness in the Australian labour market, combined with the record wage growth out earlier this week, will give the RBA plenty to think about,” he said.

“You’d naturally expect them to follow that up with a hike in either December or February.”

Demand slows, but jobs still surprise

The unemployment rate has now bounced between 3.5 per cent and 3.7 per cent for the bulk of 2023, which is close to historic lows despite ongoing rate hikes slowing economic momentum.

EY senior economist Paula Gadsby said the resilience of the labour market “continues to surprise” experts, though the latest data shows a “mild slowing in demand” is underway.

“Hours worked are growing at a slower pace than employment. Underemployment was also higher over the year at 6.3 per cent in October, compared to 5.9 per cent in October 2022,” she said.

“The unemployment rate for 15–24-year-olds has also increased, to 9.2 per cent – which is the highest in over two years, when lockdowns hit this cohort the hardest.”

Gadsby added that the figures were still in line with RBA forecasts, meaning central bankers will go into the December meeting retaining their bias to raise rates, but with “one foot hovering on the brake”.

Oxford Australia head of macroeconomic forecasting Sean Langcake agreed that future indicators of jobs demand are softening, pointing to a larger uptick in the jobless rate in early 2024.

But until then the resilience in jobs growth is likely to worry the RBA, he said, strengthening the case for another rate hike in December, particularly because wages growth has also soared above 4 per cent.

“While the unemployment rate ticked up in October, overall we see this a relatively strong print, and shows the labour market continues to defy the gravity of slowing activity and softening forward indicators,” he said.

“The labour market is still in a position where it will generate strong wage growth, which strengthens the case for another rate hike from the RBA in December.”

Commonwealth Bank economists, who are predicting a pause next month, suggested both the jobs and wages data from the ABS this week were anticipated in earlier RBA forecasts.

“As such, the RBA will be focusing on the inflation data ahead of the December Board meeting. The October CPI indicator (due out 29/11) will be the one to watch,” economist Stephen Wu said.

Topics: Wages growth
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