Australia’s employment market remained impressively robust in September, according to the latest data released on Thursday, showcasing a sustained growth in hiring and a stable unemployment rate. The new figures triggered a sharp rise in the Australian dollar and bond yields as market participants reassessed their expectations about when the Reserve Bank of Australia (RBA) might begin cutting interest rates.
The labor market’s resilience, coupled with a steady jobless rate of 4.1%, raised questions about the timing of any monetary policy easing. Traders, who had fully priced in a rate cut by February 2024, now see a 70% chance of the RBA holding off longer as Australia’s employment figures surpassed expectations, showing continued strength in the face of an overall economic slowdown.
In September, the Australian economy added 64,100 jobs, more than double the market’s estimate of 25,000. Full-time roles surged by 51,600, while part-time jobs increased by 12,500, a clear sign that more Australians were moving into stable, long-term employment. This marked the second consecutive month of significant employment gains, driving both the employment-to-population ratio and the labor force participation rate to record highs.
- Employment-to-population ratio: Climbed to 64.4%, the highest level on record.
- Participation rate: Reached 67.2%, reflecting a growing number of Australians engaging in the labor market.
- Underemployment rate: Declined to 6.3%, signaling fewer workers were underutilized in their current roles.
The continued growth in employment underscores the underlying strength of Australia’s labor market, which has been resilient even as other areas of the economy have shown signs of slowing down. The annual jobs growth rate reached 3.1% in the year to September, defying the broader narrative of economic stagnation.
The stronger-than-expected jobs report came as a surprise to many market watchers, prompting a revision of expectations around the RBA’s policy direction. The central bank has maintained its cash rate at a 12-year high of 4.35% throughout 2024, having previously signaled that it would remain cautious about cutting rates in the near term.
The Australian dollar surged by as much as 0.4% against the US dollar on the back of the employment data, and the yield on the three-year government bond jumped to its highest point since late July. This reaction reflected traders’ recalibration of their expectations for the RBA’s first interest-rate cut.
Given the current labor market dynamics, some analysts are now predicting a further delay in the RBA’s easing cycle, with expectations shifting beyond the previously anticipated February 2024. Eugenia Victorino, head of Asia strategy at SEB in Singapore, noted that the latest jobs figures make it even more likely that the RBA will hold off on cuts until later in 2024.
“This will keep the RBA very cautious to join the global easing cycle,” Victorino said. “At this point, risks are pointing to an even later start to the cutting cycle than our forecast of February 2025.”
Robert Carnell, head of Asia-Pacific research at ING Groep NV, echoed this sentiment, stating, “We see no incentive to shift from our call that the RBA won’t even start cutting rates until 1Q 2025, and there is a chance that even this is too aggressive.”
The RBA has been walking a tightrope, aiming to bring down inflation while avoiding stifling economic growth. So far, Governor Michele Bullock and her colleagues have managed to keep inflation under control without significantly undermining employment, but the persistent strength of the labor market complicates the decision-making process.
In its minutes from the Sept. 23-24 policy meeting, the RBA’s board acknowledged that Australia’s labor market remained tight compared to both full employment and conditions in other advanced economies. This assessment pointed to high job security, with a low share of workers losing their jobs and a relatively high share of unemployed individuals finding new work.
Indeed, the low rate of worker displacement and the consistent demand for labor, despite weaker economic growth, suggests that the RBA might face further delays in commencing a rate-cutting cycle. The central bank has emphasized that it would need to see a more pronounced deterioration in labor market conditions before it considers lowering rates.
The strong employment figures from September stand in contrast to other indicators pointing to a softening economy, such as weak private demand and a contraction in job advertisements. According to Bloomberg Economics, this divergence suggests that the job market is still in robust shape, despite the broader economic challenges.
“Despite very weak economic growth, contracting private demand, and a substantial deterioration in job ads, demand for workers looks rock solid,” said a Bloomberg Economics analysis. “We think the job market will eventually weaken. But until there are clear signs that’s happening, the RBA will be comfortable staying on hold.”
One of the key factors complicating the RBA’s decision-making is the persistence of wage pressures in a tight labor market. With unemployment holding steady at 4.1% and underemployment decreasing, businesses are finding it increasingly difficult to hire workers without offering competitive wages. This puts upward pressure on inflation, making it harder for the central bank to consider rate cuts in the near term.
Callam Pickering, economist at the global job site Indeed Inc., highlighted the importance of wage growth and productivity in the current economic environment. “It’s difficult to imagine the RBA cutting rates when labor market conditions are so tight, productivity growth so dreadful, and wage pressures still considerable,” Pickering said. “It feels like something needs to change to force the RBA’s hand.”
Despite these wage pressures, the RBA has so far managed to prevent a wage-price spiral from emerging, in which rising wages lead to further inflation. However, maintaining this delicate balance will become increasingly challenging if the labor market continues to tighten without a corresponding increase in productivity.
The latest employment figures will play a critical role in the RBA’s decision-making process as it approaches its Nov. 4-5 policy meeting. Along with the third-quarter inflation data, which is due to be released later this month, the jobs report will provide crucial insight into the health of the Australian economy and the potential trajectory of monetary policy.
Governor Bullock and her colleagues are likely to remain cautious about making any sudden moves, especially given the uncertainty surrounding global economic conditions. While inflation has been brought down from its peak, it remains above the RBA’s target range, and the central bank has little room for error as it seeks to engineer a soft landing for the economy.
With employment growth remaining strong and wage pressures persisting, the RBA may find itself in a holding pattern for longer than previously anticipated. The global economic outlook also remains uncertain, with central banks in other advanced economies grappling with similar dilemmas as they try to balance inflation control with supporting growth.
Australia’s strong labor market performance in September has complicated the outlook for the Reserve Bank of Australia’s monetary policy. While the broader economy is showing signs of slowing, the continued strength of employment, record participation rates, and steady wage pressures suggest that the RBA will remain cautious about cutting interest rates in the near term.
As a result, market participants have pushed back their expectations for the first rate cut to February 2025 or beyond, a marked shift from earlier predictions of a cut in early 2024. With inflation still a concern and productivity growth lagging, the RBA faces a difficult task as it navigates the path ahead.
The central bank’s next policy meeting in November will be a crucial moment, as it assesses the latest economic data and weighs the risks of holding rates steady versus cutting them to support growth. In the meantime, Australia’s labor market continues to defy expectations, providing a source of strength for an economy that is otherwise facing significant headwinds.
