Cafe manager Rhyss Kearns serves customers at Bay Ten Espresso, a cafe that has struggled with filling staff job openings in recent months due to a worker shortage according to its owner, in Sydney, Australia, August 31, 2022. REUTERS/Loren Elliott/File Photo
Summary
Employment jumps 44,000, twice market forecasts
Jobless rate rise to 4.1%, mostly a statistical quirk
Labour market may be too 'tight' for RBA, though wages say otherwise
SYDNEY, Feb 20 (Reuters) - Australia's unemployment rate ticked higher in January even though job creation handily outpaced forecasts, data showed on Thursday, a mixed outcome that does little to clarify the outlook for further cuts in interest rates.
Figures from the Australian Bureau of Statistics showed net employment rose 44,300 in January from December, when it jumped 60,000. That was well above market forecasts for a 20,000 rise, and all of the gains came in full-time employment, which climbed by 54,100.
Annual jobs growth accelerated further to a blistering 3.5%, more than twice the pace seen in the United States.
The jobless rate still nudged up to 4.1%, from 4.0%, as the workforce expanded by even more than the increase in jobs. This was largely due to more women looking for work and finding jobs, which lifted the participation rate to a record high of 67.3%.
The ABS noted a pattern had emerged since the pandemic where an unusually large number of people were not employed in January but expected to start a job in the near future.
This phenomenon tended to see the unemployment rate rise in January, only to fall back in February.
The uptick in joblessness overstates the extent to which the job market loosened last month, said Abhijit Surya, a senior economist at Capital Economics.
The tight labour market reinforces our view that the RBA will deliver a shallow easing cycle.
TheReserve Bank of Australiathis week trimmed its cash rate by 25 basis points to 4.10%, but cautioned further easing could not be guaranteed given upside risks to inflation.
It noted the strength of employment was a hurdle to further cuts since it could stoke cost pressures and prevent core inflation from slowing to the middle of its 2-3% target band.
Core inflation ran at 3.2% in the December quarter and is expected to slip under 3.0% this quarter. The RBA now expects it to bottom out at 2.7% and above its 2.5% target, in large part due to the tight labour market.
However, the main inflationary effect of strong employment is typically through rising wages, and they are actually heading in the opposite direction.
Figures released on Wednesday showedwages roseby a surprisingly subdued 0.7% in the December quarter, pulling annual growth down to 3.2% and a long way from its 2023 peak of 4.2%.
This will keep the RBA alive to the prospect the labour market may not be as inflationary as their forecasts imply as they weigh the case for further easing, said Taylor Nugent, a senior markets economist at NAB.
We assess the labour market is near balance and forecast the unemployment rate will rise only modestly.
The moderation in wages is one reason markets are still pricing in a 75% chance the RBA will cut rates again in May, after skipping a move at its April meeting.
The easing cycle is expected to be shallow, with rates finding a floor at 3.6% by year-end.
https://www.reuters.com/markets/australia-jan-employment-jumps-44000-jobless-edges-up-41-2025-02-20/
