By Shane Wright and Millie Muroi
Hopes the Reserve Bank will follow up its first interest rate cut in four years with another during the election campaign are fading after new figures revealed a surge in people getting full-time jobs or waiting to start paid work.
As the bank’s deputy governor said holding interest rates steady may have driven inflation too low, data from the Australian Bureau of Statistics revealed an extra 54,000 full-time positions were created across the country in January.
The nation’s jobs market remains strong with businesses adding another 54,000 full time workers in January.Credit: Alex Ellinghausen
Over the past year, almost 500,000 jobs – of which 345,500 were full-time – have been created.
The unemployment rate rose slightly to 4.1 per cent after the number of people out of a job increased by 23,000. But the participation rate – the proportion of people in work or looking for it – jumped to a record 67.3 per cent after a surge in women into the workforce.
The bureau noted that some of the increase in total unemployment was due to a larger-than-normal number of people who were waiting to start or return to work in February, suggesting the jobless rate will soon fall.
While the Reserve Bank cut official interest rates by a quarter of a percentage point on Tuesday, it did so despite ongoing concerns that the jobs market could put upward pressure on wages and inflation.
RBA governor Michele Bullock noted that the surprising strength of the jobs market would be a key determinant in the future direction of interest rates.
“While this is good news for job seekers, the board remains alert to the possibility that it is signalling a bit more strength in the economy, which could delay or stall the disinflation process,” she said.
On Thursday, deputy governor Andrew Hauser told Bloomberg that one of the reasons the bank cut rates this week was internal forecasts showing if interest rates were not reduced, the inflation rate would fall below 2.5 per cent which is the middle of the RBA’s 2-3 per cent target band.
“Under that forecast, inflation did not stop at 2.7 per cent, it undershot the mid-point. Not a lot but by a little bit and that factor alone was quite an important input into the board’s decision,” he said.
Reserve Bank deputy governor Andrew Hauser has revealed inflation may have eased too far without a rate cut this week.Credit: Alex Ellinghausen
On Wednesday, the bureau reported wage growth eased through the final three months of 2024 despite the strong jobs market. Annual wage growth fell from 4.2 per cent to 3.2 over the past year.
Separate figures released on Thursday by the bureau showed average weekly ordinary time earnings hit a record $1975.80 a week in December or $102,742 a year.
Treasurer Jim Chalmers said since the government had come to office, more than 1.1 million jobs had been created while average earnings had jumped by almost $11,000 annually.
“Labor’s reason for being is to ensure more people are working, earning more and keeping more of what they earn and this shows once again we are heading in the right direction,” he said.
“These numbers help demonstrate that under the Albanese Labor government, inflation is down, wages are up, unemployment is low and now interest rates have started to come down too.”
One of the RBA’s concerns is that despite strong jobs growth, overall productivity levels across the economy have fallen. This week, it forecast productivity to have fallen by 1.9 per cent through 2024.
Shadow treasurer Angus Taylor used a speech in Sydney to argue that it would be difficult to tap the jobs market for more workers, saying the only way to support the economy was through stronger productivity.
“While we should protect the employment gains achieved under the Coalition government, with participation at record highs, we need to acknowledge the limits of further participation,” he said.
HSBC Australia chief economist Paul Bloxham, who believes the RBA will hold interest rates steady until the second half of this year, said the job figures confirmed home buyers should not expect a sharp reduction in borrowing costs.
“A still-tight jobs market, but softening wages growth, appears to be good news for the RBA. We expect that the RBA’s easing phase will be very gradual, given the continued strength of the jobs market,” he said.
AMP economist My Bui said the only reason to hold out against further interest rate cuts was if the jobs market was too strong and forcing businesses to pass on higher wage costs to consumers.
This week’s wages figures showed this was not the case.
“Therefore, we see today’s jobs report as neutral for the future path of interest rates in Australia,” she said.
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