‘Stunning’ fall in jobless rate leaves RBA in a dilemma

The latest ABS data revealed a 116,000 rise in employment.

The latest ABS data revealed a 116,000 rise in employment. Photo: AAP

Australia has recorded a “stunning” fall in its jobless rate to 3.7 per cent in February, from 4.1 per cent in January.

The latest labour force release from the Australian Bureau of Statistics revealed an 116,000 rise in employment – well above the expected 40,000.

The participation rate rose 0.1 percentage point to 66.7 per cent.

“With employment growing by around 116,000 people, and the number of unemployed falling by 52,000 people, the unemployment rate fell to 3.7 per cent,” bureau head of labour statistics Bjorn Jarvis said on Thursday.

The bureau said February’s jobs boost followed a couple of weaker months triggered by a larger-than-usual number of people with a job waiting to start a new one.

February’s rate is the lowest since September last year, and well below economists’ predictions of 4 per cent.

“The resilience of the Australian labour market has continued to surprise over the past few months,” EY senior economist Paula Gadsby said on Thursday.

“But today’s result is particularly stunning, even taking into account the unusual seasonality in January.”

Gadsby warned the tight labour market was likely to keep upward pressure on wages, leaving the Reserve Bank with continued concerns about ongoing inflation.

Oxford Economics Australia lead economist Ben Udy said February’s strong result only unwound weakness in figures from the past two months. The average rise in employment over the past three months had been a modest 23,200, he said.

However, he echoed Gadsby’s view that the most recent figures highlighted ongoing tightness in the labour market.

“These data clearly challenge the view that monetary policy is providing enough of a drag on the economy to bring down wage growth and inflation,” he said.

Moody’s Analytics said the surprise fall showed recent monthly data could not be relied on.

“The Aussie labour market is all topsy-turvy. Employment is seesawing from month to month – but not because employers can’t make up their minds or are second-guessing their hires. Instead, it reflects changes to the way and time we work throughout the year,” Moody’s Analytics economist Harry Murphy Cruise said.

“The labour market is ever-so-slowly weakening, with unemployment edging higher over the past 12 months. At the same time, underemployment is rising and hours worked are moving lower.

“That said, the fact trend unemployment has largely held steady since September is a remarkable outcome, especially when combined with the rapid improvement of inflation over the same period.”

Murphy Cruise said the recent pause was unlikely to continue.

“The slowing Aussie economy will hold back the pace of new job creation. To be clear, that’s slowing job creation, not falling jobs; close to a quarter of a million jobs are on track to be created this year,” he said.

“Strong population growth will push labour supply higher. With population growth outpacing new job creation, unemployment will likely nudge 4.5 per cent by the end of 2024.”

Westpac Business Bank chief economist Besa Deda said Thursday’s data strengthened the Reserve Bank’s “wait-and-see” approach before cutting rates.

The central bank left interest rates unchanged for the fifth month in a row at its most recent meeting on Tuesday.

Deda also expected the jobless rate to drift up throughout the rest of 2024 – with the RBA likely to begin cutting rates by the end of the year.

“Our view is that rate cuts will come later this year, and I think today’s data does suggest that there’s no hurry for the Reserve Bank to be cutting rates,” she said.

The RBA also expects a gradual softening in the labour market in coming weeks due to its interest rate-hiking cycle aimed at bringing down inflation.

It has forecast an unemployment rate of 4.2 per cent by the middle of the year and 4.3 per cent by the end of 2024.

Treasurer Jim Chalmers welcomed the “remarkable” labour market result.

“Despite everything that’s coming at us from around the world, inflation is moderating and our labour market remains one of our greatest strengths with unemployment remaining below its pre-pandemic average and participation at near record highs,” he said.

-with AAP

Topics: Employment
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