Jobless fall to 8-year low gives RBA breathing room
22 Mar 2019
Australia’s unemployment rate has hit an eight-year low, giving the Reserve Bank more breathing room to wait for a bounce in economic growth and hold off on interest rate cuts.
The jobless rate dipped to 4.9 per cent from 5 per cent, driven by more part-time employment growth and a drop in the number of people seeking work.
“Normally we’d be talking about a rate hike given the unemployment rate has just broken through 5 per cent,” CBA economist Gareth Aird said, “But it’s clearly a different world these days with inflation still low, wages pressures muted, house prices falling and consumers saddled with debt.
“Today’s data essentially validates why the RBA has said that the next move in interest rates could be up or down.”
Economists expected the overall jobless rate to remain unchanged at 5 per cent figure with many forecasting the unemployment rate to start climbing as early as next month.
However others such as Professor Warren Hogan and HSBC’s Paul Bloxham have argued that despite slower economic growth, employment figures are actually pointing to better economic conditions.
“We continue to see the jobs numbers as giving a better guide to economic momentum than the recent much-weaker GDP figures,” Mr Bloxham said on Thursday.
Devil in detail for employment figures
However, the detail in the latest jobs report showed there was actually a loss of 7300 full-time jobs in February, while the number of part-time jobs rose by 11,900, resulting in a net gain of 4600 extra jobs – a number that disappointed market expectations of a gain of 15,000 new positions.
The participation rate – those actively looking for work – slipped to 65.6 per cent from 65.57 per cent, resulting in more than 7000 people leaving the labour force, according to the Australian Bureau of Statistics.
The monthly underutilisation rate – the best measure of the slack in the labour market – fell from 13.2 per cent to a 5½-year low of 13.1 per cent.
NAB, which expects unemployment to increase and force a rate cut in July, said the figures were a relief for the RBA.
“We think today’s numbers buy [the RBA] some more time before cutting rates.”
Westpac, which is one of the more bearish banks on the outlook and had forecast an overall decline in jobs of 5000, said it thought the RBA would now “feel little pressure” at this point to change its forecast for the unemployment rate to fall to 4.75 per cent.
“It will all come down to who is the better forecaster,” Westpac’s Justin Smirk said.
Employment v economic growth
Minutes released from the RBA’s March board meeting in the first week of March specifically highlighted how the bank was focused on the employment versus economic growth issue.
“Given that further progress in reducing unemployment and lifting inflation was a reasonable expectation, members agreed that there was not a strong case for a near-term adjustment in monetary policy,” the minutes said.
Last week the Westpac Melbourne Institute’s Unemployment Expectations Index recorded an 8.9 per cent jump, indicating more consumers expect unemployment to rise in the year ahead.
The latest figures showed that unemployment rates dropped in all states except NSW and Victoria, where the rates touched 40-year lows last month.
Separately, the SEEK Employment Report showed a decline in job advertising of 3.6 per cent in February compared with the year-earlier month.
“We have seen a slowdown in job advertising which has been driven by a number of factors including a decline in demand for workers in real estate and construction, business and consumer confidence and the upcoming election,” SEEK managing director Kendra Banks said.