Australia’s unemployment rate fell to 3.9 per cent in November, down from 4.1 per cent in October.

Bureau of Statistics (ABS) data show the number of people in employment increased by 35,600, while the number of unemployed fell by 27,000, in seasonally adjusted terms.

In November, the Reserve Bank was forecasting the unemployment rate to creep up to 4.3 per cent by the end of this year, and for wages growth to keep slowing as labour market conditions ease.

But ABS officials say there were a higher than usual number of people moving into employment in November who were unemployed and waiting to start work in October, which contributed to the noticeable decline in the unemployment rate.

Full-time employment increased by 52,600 last month, while part-time employment fell by 17,000.

“The recent growth in population has boosted the labour supply as employment has kept up with population growth,” David Taylor, ABS head of labour statistics, said.

The underemployment rate also declined in November, by 0.1 percentage points to 6.1 per cent. It is now sitting 2.6 percentage points lower than in March 2020.

“Compared with outcomes before the COVID-19 pandemic, the unemployment and underemployment measures are still low, while trend employment and participation measures are around all-time highs,” Mr Taylor said.

“This suggests the labour market continues to be relatively tight,” he said.

Bye-bye February rate cut?

Economists say the chance of the RBA cutting interest rates in February have now been undermined again.

“The only downside to Australia’s remarkably strong job market is that any hope of a near-term interest rate cut is over,” said Callam Pickering, APAC economist at global job site Indeed.

Others said the strong labour market data also called into question the RBA’s thinking about the relationship between inflation, labour market “tightness,” and wages growth.

“Today’s blockbuster November employment report seemingly pushes back — yet again — the prospect of an official interest rate cut as early as February,” David Bassanese, BetaShares chief economist, said.

“[But] a low unemployment rate alone should not stand in the way of lower official interest rates next year if inflation continues to decline.

“Instead, falling inflation and still low unemployment (were that to occur) should force the RBA to reconsider what it deems to be the non-inflationary rate of unemployment — from its current assumption of 4.5 per cent.

“It should also force the RBA to reconsider whether the economy is really operating with an excess level of demand,” he said.

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Last week, Westpac Group chief economist Luci Ellis said the RBA had clearly made the assessment that demand was still outstripping supply in Australia’s economy, and a period of weak demand was needed to close the gap.

But she thought that “output gap” had largely closed already.

“The further deceleration in wages growth, unit labour cost growth and output price inflation in the latest quarter are all consistent with this,” she wrote.

Ms Ellis made those comments after data last week showed the growth rate of Australia’s economy had slipped to its slowest annual pace in decades in the September quarter, outside of the pandemic.

But EY senior economist Paula Gadsby said the Reserve Bank would still obviously remain alert to inflation risks in coming months, because the “tight” labour market conditions in November could make it tougher to achieve low and stable inflation.

“As the labour market continues to bubble along in a restrictive interest rate environment, the Reserve Bank can so far be reassured they are walking the ‘narrow path’ — preserving many of the jobs created over the past few years,” Ms Gadsby said on Thursday.

“But with underlying inflation still too high at 3.5 per cent, our view is that the Reserve Bank will need to keep rates on hold through the first quarter of next year, and possibly later.”

Australia’s employment ‘conundrum’ continues

A number of economists said it has become difficult to forecast the unemployment rate now because the usual economic “laws” didn’t seem to be in play.

“Taken at face value the data indicates that the labour market is not loosening despite well below trend GDP growth and forward indicators of labour demand all consistent with a softening labour market,” CBA economist Gareth Aird wrote.

“The disparity is largely explained by strong growth in non-market employment, which doesn’t make a commensurate contribution to measured GDP. Notwithstanding, it’s still a very unusual dynamic.

“Okun’s law, which is an empirically observed relationship between unemployment and GDP, is not in play at the moment. And most economists are having a rough time trying to model and forecast the unemployment rate,” he said.

Mr Aird said from this vantage point, Australia should be able to run an unemployment rate of 4 per cent and still see inflation within the RBA’s 2-3 per cent target band sustainably.

“But we don’t know if the RBA shares our view (or is coming around to our view),” he wrote.

The graphic below shows where inflation was sitting in the September quarter.

Inflation has been trending downwards for almost two years, and this week the RBA Board said it was “gaining some confidence” that inflationary pressures were declining in line its recent forecasts, although risks remained.

Recent data has also shown that household spending picked up in October and November, as the federal government’s stage 3 tax cuts flowed into bank accounts, and households made the most of the Black Friday sales.

Economists said it may be a sign that pressures are easing slightly for households as the end of the year approaches, but more data will be needed to confirm the trend.

Overall, CreditorWatch chief economist Ivan Colhoun said Australia’s “employment conundrum” was clearly continuing.

“SEEK job ads have dropped in the past two months, which suggests a rising trend in the unemployment rate should emerge, but only a slow rise could be expected given the current slow rate of reduction in job advertising,” he said.

“Today’s number seriously undershoots the RBA’s forecasts of an unemployment rate of 4.3 per cent at end 2024 and should weigh against an early rate cut.

“However, the bank has a habit of interpreting the data to fit the policy it wants to enact, so it is still the case that a low quarterly trimmed mean consumer price index (CPI) reading in late January would be a very important print.

“Together, the data continues to suggest a relatively slow and moderate easing cycle in Australia,” he said.