Key Points
  • Australia's unemployment rate climbed to a two-year high of 4.1%.
  • The economy saw a minimal net job gain in January, with 11,100 full-time jobs added and 10,600 part-time jobs lost.
  • Changes in seasonal labour market patterns, noted by the ABS, are affecting employment dynamics.
  • Economists anticipate that the RBA may need to cut rates in 2024 to curb a projected rise in unemployment, though further data is needed for definitive predictions.
  • The RBA is closely monitoring these trends to inform future interest rate decisions, balancing concerns over inflation and unemployment.

The number of Australians left looking for work increased by 22,000, double the full-time roles available in January as employers cut back on hiring off the back of high interest rates. 

During the first month of the year, the economy added 11,100 full-time jobs, which was more than offset by the 10,600 part-time roles shed, leaving the net gain of just 500 new jobs. 

At the time the data was recorded, the interest rate was at its current peak of 4.35%. 

A high cash rate tends to lower business investment (capacity to finance new ventures), leading to a reduction in hiring and an increase in unemployment. 

The RBA is expected to closely watch today’s employment figures to assess the impact of its rate hikes and determine which direction it will take after keeping the interest rates unchanged in February. 

But a huge part of their decision depends on inflation, which currently sits at 4.1%.

“Our two objectives are mostly complementary – over the longer term, low and stable inflation is necessary to achieve sustainable full employment,” RBA governor Michele Bullock told federal parliament last week. 

“Our forecasts are for employment to continue to grow but more slowly than over the past few years. But these outcomes are dependent upon inflation returning to target in a reasonable timeframe and inflation expectations not drifting up.”

Accounting for the emerging shift in seasonality in ABS’ labour force survey, economists said this month’s data may not give the RBA the complete picture for more accurate gauges.

“The softening trend in labour market conditions that extended into the new year was amplified by shifting seasonal dynamics that have become increasingly apparent in the years since the pandemic,” Westpac economists said.

Shifting seasonal impacts push jobless rate at a two-year high

The latest read marked the first time since January 2022 that the unemployment rate had been above 4%. 

It was also higher than the forecast by the country’s four major banks, which all predicted the rate to sit at 4%.  

However, the ABS noted the increase in the jobless rate in January – similar to the same month in 2022 and 2023 – coincided with the higher-than-usual number of people who were not employed but would start or return to work in the next four weeks. 

“This may be an indication of a changing seasonal dynamic within the labour market, around when people start working after the summer holiday period,” ABS head of labour statistics Bjorn Jarvis said. 

“In January 2022, 2023, and 2024, around 5% of people who were not employed were attached to a job, compared with around 4% in the January surveys prior to the Covid-19 pandemic.” 

However, the participation rate, or the percentage of individuals working or willing to work, remains unchanged at 66.8%. 

“The economy needs to generate ~33,000 jobs a month to keep the unemployment rate from rising on an unchanged participation rate,” CBA head of Australian economics Gareth Aird said. 

“At present, we are running well below those levels and the unemployment rate is on a clear upward trend.”

Typically, a high participation rate tempers wage growth, which in turn reduces the risk of rising wages impacting inflation. 

Meanwhile, the employment-to-population ratio further fell below 64.1%, the lowest since the RBA implemented the first hike of this cycle in May 2022. 

The underemployment rate, which accounts for people employed but are looking for more work, climbed to 6.6%.

Australians worked 49 minutes less in January as more employees took annual leave. 

“Compared with January surveys before the pandemic, we again saw a higher proportion of employed people working no hours because they were on leave,” Mr Jarvis said.

“We have seen a similar pattern in recent January surveys, which may point to further changes in labour market dynamics around the summer holiday period.”

What these figures mean for the next RBA meeting 

While the RBA has not ruled out future cash rate increases despite expectations that the labour market conditions will ease, economists believe future cuts are necessary to slow down the rise in unemployment given the latest data. 

“The recent speed at which the unemployment rate has risen will concern policymakers if it continues over the coming months,” Mr Aird said. 

“We believe RBA rate cuts will be required this year to prevent the unemployment rate from rising much above 4.5%.”

CBA expects unemployment to rise 4.5% by end-2024, more pessimistic than the RBA's 4.3%.

On the other hand, the economy experts at NAB believe more data is needed before predicting the RBA’s next move.

“At first glance, these numbers read incredibly soft, but there are good reasons to wait until February before drawing any firm conclusions,” NAB head of market economics Tapas Strickland said. 

“An extra 23.4k people were waiting to start work (than pre-Covid average) that were categorised this month as being unemployed.

“If those extra 23.4k ‘attached but unemployed’ workers were counted as employed then the unemployment rate could have been as low as 3.9% and employment growth higher.”

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