Fin-X Pulse - Australian Employment figures rule out a pre XMas rate cut

Oct 17, 20242 min read

The Australian labour market showed renewed strength across a number of metrics in September, likely ruling out a rate cut by Christmas.

Australian unemployment was revised down in August from 4.2% to 4.1% in seasonally-adjusted terms by the ABS. Last month's reading was then unchanged at 4.1%, compared to the consensus forecast of 4.2%.
Participation increased from 67.1% to a record 67.2% and the employment-to-population ratio also made a new record high of 64.4%.
Bjorn Jarvis, ABS head of labour statistics said: “Employment has risen by 3.1 per cent in the past year, growing faster than the civilian population growth of 2.5 per cent. This has contributed to the increase in the employment-to-population ratio by 0.1 percentage point, and 0.4 percentage points over the past year, to a new historical high of 64.4 per cent.
“The record employment-to-population ratio and participation rate shows that there are still large numbers of people entering the labour force and finding work in a range of industries, as job vacancies continue to remain above pre-pandemic levels.
“While the number of unemployed people fell slightly to 616,000 in September, overall the number of unemployed people has risen by around 90,000 people since September 2023. Despite this rise over the last year, there are still around 93,000 fewer unemployed people than there were just before the start of the COVID-19 pandemic, when the unemployment rate was at 5.2 per cent.
"The trend employment and participation measures are at an all-time high, while unemployment and underemployment measures are still low, especially compared with what we saw before the pandemic. This suggests the labour market continues to be relatively tight".

Fin-X Wealth View

This was a much stronger-than-expected labour report that is likely to have implications for monetary policy.
The supply of labour has increased due to a combination of immigration and an increase in the participation rate. It's not clear why participation is so strong. It could be a result of younger migrants coming to Australia, cheaper childcare, more Australians choosing to work to meet cost-of-living pressures, something else, or a combination.
It is unlikely to be a result of more workers being forced into lower-quality jobs. Hours worked are rising and underutilisation is peaking, suggesting that there is still some upside pressure to wages.
Even before considering the impact of Chinese stimulus, this is likely to delay rate cuts. Our base case is still for the first cut to arrive in early 2025. But several money managers expected a December cut and will likely have to adjust their view. Market pricing of the cash rate being -0.25% lower by the end of February has dropped to 80%
There is also a chance that the RBA's updated forecasts show inflation taking longer to return to target. As a consequence, we expect at least to hear some hawkish jawboning from the Reserve Bank and a suggestion that rates could still rise again. However, we also anticipate that a weakening global economy makes an additional rate hike unlikely.