Unemployment plunges to 3.7pc from 4.1pc: Rate cuts less likely after shock number

The jobless rate has plunged to 3.7pc, marking an extraordinary turnaround that economists say could push back any mortgage relief from the Reserve Bank.

RBA governor Michele Bullock has said that ‘some of the tightness in the labour market is easing’. Picture: Jeremy Piper/NCA NewsWire

An extraordinary turnaround in the jobs market could delay any mortgage relief from the Reserve Bank until 2025, after the unemployment rate plunged to 3.7 per cent in February from 4.1 per cent in the month before.

The nation added 116,500 jobs in the month, as full-time and part-time employment surged, the seasonally adjusted figures from the Australian Bureau of Statistics revealed.

Outside the pandemic period, the 0.8 per cent rise in the number of employed Australians was the largest monthly increase since mid-2000. Jim Chalmers said the “trifecta” of falling unemployment, moderating inflation and real wages growth was the result of the government’s economic plan, but added that he still expected the economic slowdown to push the jobless rate higher.

“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,” the Treasurer said.

“Global economic uncertainty, moderating but high inflation and higher interest rates are slowing our economy in expected ways, and as a result we expect the ­labour market to soften over the period ahead,” he said.

The latest figures confounded forecasts for unemployment to slip to 4 per cent following summer job losses that experts considered would be partly reversed last month, with the jobless rate dropping to its lowest since September.

Citi chief economist Josh Williamson said “the RBA now has more than achieved their wish of hanging onto labour market gains despite having the highest cash rate target in 12 years”. Mr Williamson, who had been expecting two rate cuts later in 2024, said he now predicted only one in November, “with the risk that there are no rate cuts this year”. The unemployment gains were recorded across the country, falling by half a percentage point to 3.6 per cent in NSW and by 0.7 percentage points in Western Australia to 3.6 per cent. The jobless rate in South Australia was down 0.8 percentage points to 3.2 per cent – the lowest in the history of data stretching back to 1978.

ABS head of labour statistics Bjorn Jarvis said the unexpectedly large increase in employed people in February followed a weaker than usual December, when employment fell 62,000, followed by only a partial rebound in January.

The ABS surveys through summer had showed an unusually large number of people who had jobs and were waiting to get back to work, and a rebound in February had been expected. Still the jobs growth was nearly triple the consensus forecast among economists. Capital Economics economist Abhijit Surya said “the sharp fall in the unemployment rate in February was likely a blip rather than a trend”.

“With job vacancies continuing to fall, we suspect the unemployment rate will rise anew in the months ahead,” Mr Surya said.

Underemployment – which measures those with jobs but who want more hours – inched lower to 6.6 per cent. Youth unemployment also fell, from 9.4 per cent to 9.1 per cent.

The jobless figures had been trending higher since the middle of last year, after reaching a near 50-year low of 3.4 per cent as the economy boomed in the wake of the Covid-19 lockdowns.

The Reserve Bank predicts only a very gradual lift in the unemployment rate through 2024, reaching 4.2 per cent by June and 4.3 per cent by December.

After holding rates steady at 4.35 per cent for a third month, RBA governor Michele Bullock this week made it clear the central bank was not targeting a certain rate of unemployment, saying the board was keeping an eye on a range labour market indicators.

“I don’t want to put a finger on the unemployment rate that we would like to sort of see,” she said. “I think the unemployment rate is something that is mechanically going to rise as the economy slows.”