Boom in new jobs dampens chance of early-year rate cut

A record number of Australians in work has dealt a blow to hopes of a February rate cut. Three times as many people as analysts had expected found employment in December.

Despite the increase in the proportion of Australians in work, which rose to a record-high 64.5 per cent, the technical rate of unemployment rose too because more people were looking for work.

While part-time employment increased by 80,000 jobs, the number of full-time workers dropped by 23,700.Credit: Louie Douvis

The unemployment rate edged up to 4 per cent in December from 3.9 per cent in November, according to data released by the Australian Bureau of Statistics on Thursday. While the unemployment rate was in line with expectations, the 56,300 extra people in work was more than triple the expected increase.

The Reserve Bank has said it is waiting for signs of easing in the labour market and a sustainable fall in inflation to its target range of 2 to 3 per cent before it cuts interest rates, but the most recent jobs figures are likely to muddy the waters when the board next meets to discuss rates on February 18.

The RBA has held the cash rate steady at 4.35 per cent since November 2023 after 13 rate rises in the 18 months before that. Markets are pricing in a 69 per chance of a rate cut at the Reserve’s first meeting of the year, down from 71 per cent on Wednesday.

At a press conference in Brisbane, Treasurer Jim Chalmers said the economy was on track for a soft landing, with 1.1 million jobs created under the Albanese government.

Treasurer Jim Chalmers.Credit: Alex Ellinghausen

“These are stunning numbers when it comes to an economy where growth has not been thick on the ground, and with all the challenges which are coming at us from around the world,” he said. “We’ve shown that we can make substantial and sustained progress on inflation while creating jobs, not sacrificing jobs.”

The rise in both the number of employed people and the unemployment rate – the proportion of people actively looking for work but without a job – suggests the latter was largely driven by more people deciding to look for jobs, which can signal confidence and continued strength in the jobs market.

With a key measure of inflation down to 3.2 per cent in November, and wage growth slowing to 3.5 per cent in the September quarter, there are promising signs inflationary pressures are easing. The Reserve Bank said in November that it was gaining confidence that inflation was coming under control.

But given the volatility of the monthly inflation data and mixed signals in labour force figures, all eyes will be on the quarterly inflation reading on January 29.

Betashares chief economist David Bassanese said the resilience in the labour market meant the Reserve Bank should be careful about hurrying into a rate cut anytime soon.

“Despite weak GDP growth, the economy retains an impressive ability to find jobs for the still rapidly expanding labour force,” he said, noting he still expects the RBA to refrain from a rate cut in February unless underlying inflation falls from 3.5 per cent in September to at least 3.25 per cent in the December quarter.

Capital.com senior financial market analyst Kyle Rodda said the latest jobs numbers slightly reduced market expectations for a rate cut in February, but added that a drop in the number of people working full-time tempered concern about inflationary pressure from a strong jobs market.

“Businesses are still hiring and there’s still demand for labour, but part-time jobs don’t add as much tightness to the labour market because people work on a flexible basis and there’s generally less pressure put on wages,” he said.

While part-time employment increased by 80,000 jobs, the number of full-time workers dropped by 23,700.

The unemployment rate was highest in Victoria, jumping 0.3 percentage points to 4.4 per cent, while WA was the state with the lowest unemployment rate, staying steady at 3.3 per cent. NSW clocked a 0.1 percentage point drop with unemployment coming in at 3.8 per cent.

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