The unemployment rate has risen to 4.1 per cent with an estimated 500 jobs created in January, according to the Australian Bureau of Statistics (ABS).
“This was the first time in two years, since January 2022, that the unemployment rate had been above 4 per cent,” noted the bureau’s head of labour statistics Bjorn Jarvis.
The number of people considered officially unemployed increased by 22,000 last month, and hours worked fell by 2.5 per cent, continuing the general slowing in hours worked since mid-2023.
The numbers were weaker across the board, with the underemployment rate ticking up 0.1 of a percentage point to 6.6 per cent.
Labour market is cooling down ‘quite sharply’
Economists say the numbers indicate Australia’s labour market is cooling down in the wake of the Reserve Bank’s rapid interest rate hikes.
Treasurer Jim Chalmers said the rise in the unemployment rate was an “inevitable consequence” of the RBA’s rate hikes, higher inflation, and economic uncertainty.
“We’ve seen in job ads, we’ve seen in the way that hours have come off, that our labour market has been weakening, but it’s been weakening from a really quite incredibly strong and resilient base,” Dr Chalmers said on Thursday.
“Because of the pressures that people are under, the pressures our economy is under and indeed the global economy as well, those are largely the reasons for the tick up in the unemployment rate we see today,” he said.
Commonwealth Bank economist Gareth Aird said the unemployment rate had risen “quite sharply” over the last five months and he suspected it would rise more quickly than the RBA was anticipating this year.
Mr Aird observed in a note to clients that the unemployment rate was only 3.6 per cent in September, so a lift of 0.5 percentage points in five months was “significant and somewhat concerning.”
“The recent speed at which the unemployment rate has risen will concern policymakers if it continues over coming months,” he noted.
“We believe RBA rate cuts will be required this year to prevent the unemployment rate from rising much above 4.5 per cent. Today’s data is consistent with our base case that sees the RBA commence an easing cycle in September,” he said.
Mr Jarvis from the ABS said there were some seasonal factors at play in the January numbers, given many Australians were still on holidays when the survey was conducted.
He said a potential offset to some of the weakening we’re seeing in the January figures was a post-COVID phenomenon of many more people waiting to start new jobs at the end of January than used to be the case.
“While there were more unemployed people in January, there were also more unemployed people who were expecting to start a job in the next four weeks,” Mr Jarvis said.
“This may be an indication of a changing seasonal dynamic within the labour market, around when people start working after the summer holiday period.”
However, Mr Aird said while that was an important caveat that suggested we may see the unemployment rate fall a little in February, it didn’t explain all of the weakness we were seeing in employment right now.
“The economy needs to generate 33,000 jobs a month to keep the unemployment rate from rising on an unchanged participation rate,” Mr Aird said.
“At present, we are running well below those levels and the unemployment rate is on a clear upward trend.”
While Mr Aird does not expect rate cuts to come until September, AMP’s chief economist Shane Oliver told ABC News that he thinks the RBA could be forced to cut as soon as June.
“The jobs numbers were quite a bit softer than I thought,” he said.
“So I think it’s yet another indication that the jobs market is cooling down — it is still fairly tight, unemployment around 4 per cent is still low in Australia’s historical context, but it is cooling down.
“I think this will come as a relief to the Reserve Bank, and ultimately, it will contribute to interest rate cuts, but we probably still have a few months to go before we get to that point.”
ABS survey’s ‘idiosyncratic habits’
Citi economists Josh Williamson and Faraz Syed said they did expect a solid “bounce back” in employment in February, due to seasonal factors, which could see the unemployment rate fall again next month.
But they still expect the unemployment rate to slowly increase over this year to 4.3 per cent, which would be compatible with the RBA cutting interest rates later this year, as inflation falls down to around 3.5 per cent (from its current 4.1 per cent).
“The RBA will be aware of the idiosyncratic habits of the labour force survey over December and January and prefer cleaner readings on labour market health before deciding that the labour market is loosening in a meaningful way,” they said.
They said it was also important to note that full-time employment increased in January by 11,100 people, while part-time employment decreased by over 10,000.
“A labour market that is loosening in a meaningful way is unlikely to have produced an 11,000 increase in full-time employment, but this is what occurred in January,” they said.
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