Australia jobs engine slows as labour market loosens

By Stella Qiu

SYDNEY (Reuters) – Australian employment fell sharply in December after two months of surprisingly strong growth, while the jobless rate stayed at a 1-1/2 year high, adding to the case that interest rates have peaked as the red-hot labour market cools.

Figures from the Australian Bureau of Statistics on Thursday showed net employment dived 65,100 in December from November, when it surged a revised 72,600. Market forecasts had been for an increase of around 17,600.

The jobless rate was unchanged at 3.9% from November, holding at the highest reading since May 2022. The participation rate dropped sharply to 66.8%, from a record high of 67.3%.

There has been limited market reaction to the jobs data, which were overshadowed by international events as traders pared back their optimism on global easing. The local dollar dipped to $0.6538 on the data before rebounding to $0.6558, while three-year bond futures held losses at 96.17, down 7 ticks on the day.

The ABS itself noted that a change in the hiring pattern late last year led to the unexpectedly strong employment gains in October and November and a large fall in December in seasonally adjusted terms.

“I think if you take a step back and look through the volatility … I think the story is pretty clear and it hasn’t really changed that much,” said Su-Lin Ong, chief economist at RBC Capital Markets.

“Really the story is that you are getting that loosening underway. And I think to be honest, the RBA you know they’d be pretty glad to see some of that loosening.”

So far, the labour market has evolved largely as the Reserve Bank of Australia (RBA) forecast, with the job market remaining strong while a surge in migration has helped boost labour supply and restrain wage inflation.

Indeed, for the quarter, employment grew 52,000 from the September quarter, about 17,000 a month, which was not enough to absorb the increased supply in the workforce as migration surged. Thus, the jobless rate rose to 3.9% from 3.6% in September.

The growth in hours worked continued to slow to an annual rate of 1.2% in December from 1.5% the previous month, while the underemployment rate remained unchanged at 6.5%, the data showed.

The RBA has jacked up interest rates by a whopping 425 basis points to a 12-year high of 4.35% since May 2022 to tame inflation and left the door open to further tightening. The Board will next meet on Feb. 6, and markets have wagered heavily on a hold.

“Given the domestic data are neither here nor there, I think it’s the global piece that is more important, and it does lean towards them staying on hold in February,” said Ong.

Traders are still wagering that interest rates have peaked given the shift to global easing expectations, but the risk of inflation remaining above the central bank’s target for longer has led them to bet on a rate cut only in November.

They now only see 32 bps of easing this year.

(Reporting by Stella Qiu and Wayne Cole; Editing by Sonali Paul)