Unemployment holds steady, pressuring Reserve Bank to hold or hike rates
Despite 20,000 job losses across the economy, a steady unemployment rate puts pressure on the RBA to keep interest rates on hold or hike them in the new year.
More than 20,000 jobs were lost in the Australian economy in November, but the unemployment rate has held steady at 4.3 per cent, putting pressure on the Reserve Bank to keep interest rates on hold or hike them next year.
While 57,000 full-time jobs were lost, 35,000 part time jobs were added according to official figures from the Australian Bureau of Statistics.
While the loss of jobs will be a concern for the Albanese government, the unemployment rate was better than an uptick to 4.4 per cent that economists expected.
UBS economist George Tharenou said even as full-time jobs were lost, the employment market was still too tight for the RBA.
“The labour market likely needs to ease further ahead – the unemployment rate needs to increase – to reduce pressure on inflation,” Mr Tharenou said. “Hence, for the RBA, UBS still expect a cash rate hike by 25bps by Q2-26.”
The participation rate – those active in the workforce – declined to 66.7 per cent from 66.9 per cent. As the workforce participation level drops, it leaves the same number of job openings now being chased by fewer available people.
The RBA noted this week that it was watching the capacity constraints in the economy, after the board kept rates on hold at 3.6 per cent at its meeting on Tuesday.
RBA governor Michele Bullock said it was unlikely the board would cut rates for the foreseeable future, but flagged monthly unemployment figures could be volatile. The unemployment rate remains below the bank’s forecast of 4.4 per cent unemployment by the end of the year and over 2026 and 2027.
Some economists such as HSBC’s Paul Bloxham said the latest employment figures were less influential on the RBA’s rate decisions than upcoming inflation numbers.
“Looking through the noise, the jobs market is still fairly tight, but gradually loosening: this should help to make a near-term RBA hike less likely,” he said.
“These figures are, however, just of marginal influence – the main game is the CPI figures on 28 January. The CPI will be the critical one to watch for determining whether the RBA may have to lift its cash rate at its next meeting in February 2026.”
The employment to population ratio decreased to 63.8 per cent from 64 per cent in October, it’s lowest figure in the post-Covid period, with the annual job growth rate sitting at 1.3 per cent – well below the yearly increase in Australia’s working age population of 2 per cent.
Though Commonwealth Bank economists said in trend terms the figure suggested overall employment growth was keeping pace with population growth.
“The labour market has been very gradually loosening through 2025, but the RBA still views the labour market in totality as a bit too tight to bring inflation back to target. Looking through some of the noise, there is nothing in today’s release to dissuade them from this view,” the CBA said.
“The employment to population ratio fell back down to 63.8 per cent, after lifting to 64 per cent in October. However, in trend terms it remained at 63.9 per cent, suggesting overall employment growth is keeping pace with population growth.”
EY senior economist Paula Gadsby said Thursday’s figures showed a “relatively robust” labour market that risked a rate hike in the new year should inflation continue to tick up.
“When combined with lagging productivity, which has kept growth in unit labour costs high, and capacity utilisation at its highest in 18 months, the risks to inflation are obvious,” she said.
“Our view is that if there is a continuation of the recent pick-up in inflation and labour market conditions remain tight, interest rates will have to be lifted in the first half of 2026.”
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