December employment in Australia rose in line with forecasts, Reuters sees a near-term rate cut as possible
By Stella Qiu
SYDNEY (Reuters) – Australian hiring beat forecasts in December even as the unemployment rate rose as more people went looking for work – a combination of trends that signal a healthy labor market that leaves room for a short-term rate cut.
Buoyed by an increase in part-time roles, net employment jumped by 56,300 in December from November when it rose by a downwardly revised 28,200, according to data from the Australian Bureau of Statistics on Thursday.
December’s jump was well above market consensus for a rise of 15,000.
Annual job growth accelerated to a brisk 3.1%, more than double the historical average. The labor force also expanded at a similar rate.
The unemployment rate rose to 4.0% from an expected 3.9%, while the participation rate rose to a record high of 67.1% from 67.0%.
“Overall it’s pretty messy, but you’d characterize the labor market as pretty strong … It still leaves the underlying message that the labor market remains pretty tight,” said Shane Oliver, chief economist at AMP ( OTC: ).
The slowdown in wage growth also suggests that the labor market is not the source of inflationary pressures.
“Then it kind of leaves the Reserve Bank in a difficult position … I think ultimately the rate call for February will depend on the inflation numbers for December when they come out,” Oliver said.
The RBA expects core inflation to be 0.7% in the fourth quarter. Anything below that number would make it harder for the RBA not to cut rates next month, Oliver said.
Market reaction to the jobs data was muted. The Australian dollar rose 0.1% to $0.6230. Three-year bond futures pared earlier gains but were still up 8 notches at 96.06 on the back of moderate inflation figures from Britain and the US overnight.
The swaps still imply a 68% chance the RBA will cut rates on February 18, after the quarterly inflation report and another retail sales reading is expected to show a fall in sales in December after a strong showing last month.
The RBA is holding policy steady for a year, estimating that the current cash rate of 4.35% – up from 0.1% during the pandemic – is restrictive enough to bring inflation to its target range of 2-3% while preserving employment gains.
The central bank unexpectedly weakened last month as economic growth remained weak. Growth in consumer spending was disappointing even with the government’s tax cuts.
Thursday’s data showed part-time jobs rose by 80,000 in December, while hours worked rose a strong 0.5%.
“We see no evidence of labor market stagnation, and the labor market alone does not warrant the RBA to cut interest rates in the short term,” said Faraz Syed, economist at Citi.
“The timing of the first rate cut remains unchanged at May 2025, but note that lower CPI risks could allow the RBA to advance rate cuts.”
