SYDNEY (Nov 14): Australia’s employment growth slowed in October after a strong run, but the jobless rate stayed low and underlying trends remained relatively healthy, suggesting there is little rush to cut interest rates.
There was muted market reaction, with the Australian dollar little changed at US$0.6485 and three-year bond futures also unchanged at 95.78. Markets maintained bets that a first easing in Australia would come most likely in May or July next year.
Figures from the Australian Bureau of Statistics on Thursday showed net employment rose 15,900 in October from September, when they jumped by a revised 61,300.
That was the smallest increase in seven months and came in under market forecasts for a 25,000 rise, but annual jobs growth still ran at a strong 2.7%.
The jobless rate held at a historically low 4.1%, where it has been since June, while the participation rate edged down to 67.1% from an all-time high of 67.2%.
“I think it does nothing really but underscore a pretty resilient, firm labour market that continues to err on the tight side. So despite a miss on headline employment… it is still a very decent result all around, ” said Su-Lin Ong, chief economist at RBC Capital markets.
“I think from the perspective of the Reserve Bank, the labour market is probably tracking better than they thought… we would argue that… you need to see some loosening up in this labour market before they will feel comfortable cutting rates”
The RBA has held its policy steady for a year now, judging the current cash rate of 4.35% — up from 0.1% during the pandemic — is restrictive enough to bring inflation to its target band of 2-3% while preserving employment gains.
With the labour market surprisingly strong, the prospects of a near-term rate cut are slim. The central bank has said monetary policy will stay restrictive until it is confident inflation is moving sustainably to target.
Headline inflation slowed to 2.8% in the third quarter but that was only due to government electricity rebates. Underlying inflation remained high at 3.5%.
Markets imply just a 10% chance the RBA might cut at the last meeting of the year on Dec 10, and only a 28% probability of a move at its following meeting in February.
The job report showed hours worked rose 0.1% in October, up for a fifth straight month, while the underemployment rate eased 0.1 percentage point to 6.2%.
Tony Sycamore, analyst at IG, said the softer jobs growth offered some modest signs of cooling within an exceptionally resilient labour market.
“It provides the central bank with the breathing room to maintain its focus on inflation and keep rates in restrictive territory into year-end, all without any significant signs of deterioration in the labour market,” said Sycamore.
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