Australia’s unemployment rate steady at 3.9pc despite 65,000 fewer jobs

The surprising number of Australians out of work in December – and expectations that it will grow – could see the RBA cut rates even further, analysts say.

The surprising number of Australians out of work in December and expectations that it will grow could see the RBA cuts rates even further, according to analysts. Picture: David Swift/NCA NewsWire

The labour market showed signs of cooling in December as a surprising number of Australians found themselves out of work amid a broader weakening in economic activity stemming from higher interest rates and inflation.

The Australian Bureau of Statistics reported that once seasonally adjusted, there were 65,100 fewer people employed by the end of December. Financial markets had anticipated that there would be 15,000 jobs created in the month, according to Bloomberg.

The unemployment rate was unchanged at an 18-month high of 3.9 per cent, as fewer people looked for work with the participation rate down from a record high of 67.2 per cent to 66.8 per cent — helping to offset more Australians being out of work.

The fall in employment to 14.2 million in December followed larger than usual employment growth in October and November, with a combined increase of 117,000 people. This was combined with the employment-to-population ratio and participation rate, both at record highs in November.

HSBC chief economist Paul Bloxham said there had been a continued gradual loosening of jobs market conditions for the past 15 months, adding that it seemed unlikely the jobs market started ‘dropping off a cliff’ in December just as it did not soar in October and November.

“A likely driver of the strength, followed by substantial weakness, is changing seasonal patterns,” he said.

“Just as the retail figures have been heavily kicked around by Black Friday sales pulling forward spending to November, so too, the patterns in the jobs figures are changing, for this reason, as well as other post-Covid behavioural factors, changing annual leave and hiring patterns.”

The employment-to-population ratio fell 0.4 percentage points to 64.2 per cent. This was the lowest employment-to-population ratio since May 2022, but still 1.9 percentage points higher than March 2020.

“While the December employment fall was large, the number of employed people was still 52,000 higher than September,” ABS head of labour statistics David Taylor said.

“Looking over the past twelve months, seasonally adjusted employment increased by an average of 32,000 people per month, showing reasonably strong underlying growth during 2023.”

The government’s mid-year budget update last month predicted unemployment would continue to climb, but remain contained at 4.25 per cent by mid-2024 – repeating the RBA’s forecasts and hopes that the country will return inflation to target without a sharp increase in unemployment.

The key jobless measure had been tracking in the mid-3s for about a year, but now appears to be pushing higher – albeit with the rise driven more by strong immigration growth easing labour market pressures, rather than employers sacking workers.

All four major banks – and most economists – now agree that the RBA is done lifting interest rates and will look to lower the cash rate in the back half of 2024.

“Make no mistake, the labour market is cooling, and following a recent run of softer inflation data, RBA rate cuts are coming,” IG market analyst Tony Sycamore said.

“December quarter inflation data, scheduled for release on January 31, will determine whether expectations of two 25 basis point RBA rate cuts become three in 2024.”

UBS chief economist George Tharenou said that cooling market conditions meant that Australia were now working fewer hours and the utilisation of employees were also softer in December. He added that the RBA would only lift rates in February if December inflation data surprised to the upside.

“We do not expect that, especially given the labour market is now easing,” he said. “If jobs and hours don’t bounce in coming months, it would allow room for the RBA to ease pre-emptively.”

Underemployment — which measures the share of workers who are trying to get more hours but are unable to — was unchanged at 6.5 per cent, according to the ABS’s seasonally adjusted figures, higher than a year earlier but below pre-pandemic levels of above 8 per cent.