Huge jobs gains raise risk of higher interest rates for longer, economists warn
- by Admin
- March 21, 2024
A shock surge in employment last month has seen the unemployment rate tumble back to levels not seen since September last year.
The unemployment rate has dropped back to 3.7 per cent with more than 116,000 extra Australians in employment last month, compared with January, according to seasonally adjusted data from the Australian Bureau of Statistics (ABS).
The estimated 116,500 increase in employment was the biggest monthly jobs gain since the east coast COVID lockdowns ended in November 2021, and the largest on record outside of the pandemic period.
The 0.8 per cent increase in jobs in February is the biggest monthly jobs gain since July 2000, just after the GST was introduced and ahead of the tourist boom driven by the Sydney Olympics.
The full picture on jobs: How to gauge the true health of the labour market
Economists were generally expecting about 40,000 extra people to be employed last month and an unemployment rate of 4 per cent.
That in itself would have been a strong bounce back from a big employment fall in January that saw unemployment rise above 4 per cent for the first time since early 2022, reaching 4.1 per cent.
“With employment growing by around 116,000 people, and the number of unemployed falling by 52,000 people, the unemployment rate fell to 3.7 per cent,” noted Bjorn Jarvis, who heads labour statistics for the ABS.
“This was around where it had been six months earlier.”
Average jobs growth still short of population increase
AMP deputy chief economist Diana Mousina noted that, over the past three months, an average of 23,000 jobs per month had been created.
That is at a time when separate data released by the ABS on Thursday revealed the population is growing much faster.
“The population data for the September quarter showed annual growth in our population of 2.5 per cent (its highest rate since 1952) or close to 660,000, with net migration contributing 549,000 and natural increase up by 111,000,” Ms Mousina observed.
CBA’s Belinda Allen said that means Australia needs to be creating even more jobs to stop unemployment edging higher.
“This is adding to the supply of labour and we need to add around 35,000 jobs each month to keep the unemployment rate steady,” she noted.
‘No pressing need to cut interest rates’
Ms Mousina said this set of jobs data will likely keep the Reserve Bank on the sidelines for a while yet.
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“The strength in the labour market indicates that there is no pressing need right now to cut interest rates,” she noted.
“We think the RBA will need to cut interest rates by around mid-year but there is a risk that this gets pushed to August/September if the economic data continues to hold up.”
Markets are currently pricing in an 80 per cent chance of rates falling by August, while a rate cut by September is almost fully priced in, however any rate move before then is seen as very unlikely.
Many economists are tipping the first rate cut will occur in November, while a small but growing group are not expecting the RBA to start lowering its cash rate until early 2025.
Business data paints a mixed picture as well.
Judo Bank’s Flash Purchasing Managers’ Index was up at an 11-month high of 52.4, which is just below average levels and indicates business activity is expanding and they continue hiring.
“Businesses continued to increase headcounts through March, albeit at a slower rate than seen over the past seven months,” noted Judo Bank’s economists Warren Hogan and Matthew De Pasquale.
“This latest PMI result highlights that the most prominent risk scenario is for a stronger economy, sticky domestic services inflation and higher interest rates.”
But figures from credit reporting bureau CreditorWatch, which monitors business payment arrears and defaults, paint a gloomier picture.
Its chief economist Anneke Thompson said there are signs large parts of the economy are under severe strain.
“CreditorWatch’s Business Risk Index points to significantly slowing conditions in the small-to-medium enterprise sector, with the average value of invoices dropping on a trend basis over all of 2023 and in to early 2024,” she noted.
“Trade payment defaults are at record highs, indicating that there are a higher-than-normal number of businesses with cash flow issues.”
People taking an extended summer break skewed jobs data
The ABS said that February’s job surge was the consequence of a larger-than-usual number of people in December and January who had a job that they were waiting to start or return to, and had thus been considered unemployed.
The underlying health of the jobs market is probably best captured by the trend unemployment rate, which remained steady at 3.8 per cent for the sixth month in a row.
“In trend terms, the growth rate in employment has slowed since March 2023. The growth rate in hours worked has also slowed since September 2022 and has been negative since July 2023,” noted Mr Jarvis.
“However, it’s important to remember that this underlying slowdown in growth rates that we’re seeing in the trend data follows a particularly tight labour market during 2022-23.”
Those at the coalface of hiring in the recruitment sector say it was inevitable that the jobs market was likely to slow.
“There’s no doubt that companies over-hired during the post-pandemic recovery, let’s say 2022,” Andrew Brushfield, a director at recruitment firm Robert Half, told The Business.
“And what we’re seeing is many companies now probably trying to right size their workforce, and looking at those people that were over-hired in 2022.”
He has also noted some workers starting to lose their jobs to artificial intelligence.
“There’s no doubt that there are people who are unfortunately losing their job just because of automation,” he added.
Plenty of jobs, but not necessarily great ones
Angela Franks, a partner at recruitment firm Frazer Jones, told The Business that people being laid-off were not having trouble finding work, at least in the white collar sectors her firm works for.
“The first three months of this year have been really interesting because whilst we are still seeing people being made redundant we are getting a lot of those people finding jobs a lot quicker than they did last year,” she said.
Economists, such as Indeed’s Callam Pickering, say there is still evidence the jobs market is weakening, just not dramatically.
“Full-time employment accounts for just one-third of overall employment gains over the past year,” he noted, even though full-time work rose in February.
“The Australian economy is still creating an incredible number of jobs but perhaps not the same quality of jobs that we saw earlier in the pandemic recovery.”
That fits with what Andrew Brushfield is observing.
“We’re seeing contracting really ramp up,” he told The Business.
“So those people who are open to six month or 12 month type roles are seeing more opportunities.”
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