Australian Labour Market Defies Expectations with Strong Job Growth
The Australian job market has surprised economists with a remarkable surge in employment, despite a slight increase in the unemployment rate. According to the latest figures from the Australian Bureau of Statistics, net employment jumped by 56,300 in December, significantly exceeding market forecasts of 15,000.
Part-Time Jobs Drive Employment Growth
The boost in employment was largely driven by an increase in part-time roles, which saw a substantial rise of 80,000 in December. This, combined with a strong 0.5% increase in hours worked, suggests a robust labour market. The annual jobs growth rate accelerated to 3.1%, more than double the historical average, indicating a thriving labour market.
Labour Force Expansion and Record-High Participation Rate
The labour force also expanded at a similar rate, with the participation rate edging up to a record high of 67.1%. This signals a healthy labour market, where more people are actively seeking employment. The jobless rate rose to 4.0% from 3.9%, as expected, but this increase is largely attributed to more people entering the job market.
Reserve Bank’s Dilemma
The strong labour market data presents a challenge for the Reserve Bank of Australia (RBA). While the labour market remains tight, slowing wage growth suggests it is not a source of inflationary pressures. The RBA’s decision on interest rates will likely depend on the December quarter inflation numbers, expected to be released soon. If underlying inflation comes in below 0.7%, it may be difficult for the RBA not to cut rates next month.
Market Reaction and Interest Rate Expectations
The market reaction to the jobs data was muted, with the Australian dollar rising 0.1% to $0.6230. Three-year bond futures trimmed earlier gains but remained up 8 ticks at 96.06, influenced by tame inflation figures from Britain and the U.S. overnight. Swaps still imply a 68% probability that the RBA will cut rates on February 18, following the quarterly inflation report and another reading on retail sales.
Economists’ Insights
Shane Oliver, chief economist at AMP, characterized the labour market as “remaining pretty strong,” despite the mixed trends. Faraz Syed, an economist at Citi, noted that the labour market alone does not warrant the RBA to reduce policy rates in the near term, but a lower CPI could allow the RBA to bring rate cuts forward.
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