Can unemployment data soften the hawkish rate hike bias?

Team Veye | 25-May-2023 unemployment data

Australia’s seasonally adjusted unemployment rate jumped to an unexpected 3.7% in January 2023. The figure from the Australian Bureau of Statistics surprised the markets, which were largely anticipating no change to the unemployment rate. December had a five-decade low of 3.5%. The jobless rate was now the highest since May 2022.

While the number of unemployed had risen by 21,900 to 523,200, people looking for full-time jobs increased by 17000 to 344000.

Employment, facing a second straight month of decline, dropped by 11500 to 13.72 million. The underemployment rate remained at 6.1%, implying that those Australians who were currently employed but wish to work more, remained the same but the underutilisation went up to 9.8% from 9.6%. Monthly hours in all jobs were reduced by 40 million or 2.1% to 1836 million.     

The employment to population ratio fell between December and January, down 0.2 percentage points to 64.0 per cent, but was still 0.5 percentage points higher than in January 2022 and 1.6 percentage points higher than in March 2020.               

Normally, January is considered to be the most seasonal time of the year in the Australian labour market, with people leaving jobs but also getting ready to start new jobs or return from leave. Thus, the figures do not provide any clear evidence of a cooling labour market, as adding seasonal factors could boost employment and weigh on unemployment in February.

The softness in the labour market, if sustained, could lessen pressure for further aggressive interest rate hikes to fight inflation. The RBA had predicted that the jobless rate would only edge up to 3.6% by June and 3.8% by the end of this year.

Investors are still anticipating another quarter point hike when the RBA Board meets in March, due to the expectation that strong wages growth data could reinforce the hawkish bias.

Most now expect the cash rate, currently at 3.35%, to peak around 4.1%, suggesting at least three more hikes. That compared with 4.2% before the data release.

Though not betraying any sign of a weakening labour market, it could still withhold RBA's aim of bringing inflation down as the labour markets are not continuing to get better.


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