Australia’s unemployment rate has risen from 3.5% to 3.7% as higher interest rates trimmed the growth of new jobs more than economists expected.
In January, the economy shed 11,500 jobs, in seasonally adjusted terms, lifting the number of unemployed by 21,900 people, the Australian Bureau of Statistics said on Thursday.
Economists had expected the Australian Bureau of Statistics to report the unemployment rate to come in at 3.5% with about 20,000 jobs added.
The jobless rate rose to its highest level since last May’s 3.9%. That’s when the Reserve Bank (RBA) started lifting its key interest rate from record lows, beginning a series of nine consecutive increases, including one since the January job figures.
“[T]he interest rate rises which are in the system are about taking some of the heat out of the economy, and that has consequences for the unemployment rate,” treasurer Jim Chalmers told reporters.
“I suspect we are seeing the beginning of that in the number that is released today.
“We expect unemployment to tick up a little bit but we need to remember that unemployment is still near historic lows.”
Bjorn Jarvis, ABS’s head of labour statistics, said January was “the most seasonal time of the year in the Australian labour market, with people leaving jobs but also getting ready to start new jobs or return from leave”.
“This January, we saw more people than usual with a job, indicating they were starting or returning to work later in the month,” Jarvis said.
The participation rate fell 0.1 percentage points to 66.5% in January, down from the series high of 66.8% in mid-2022. The seasonal drop of 11,500 jobs added to the revised 20,000 reduction in December, larger than the initial 14,600 retreat reported by ABS.
More people took leave last month, with monthly hours worked shrinking 2.1%.
“As in 2021 and 2022, January 2023 again saw more people than usual taking annual leave,” Jarvis said. “Around 43% of employed people worked reduced or no hours because they were on leave, compared with around 4% of employed people over the same period before the pandemic.”
In trend numbers, employment was up 0.1% for the month, with hours up 0.2%, employers added 11,400 jobs, 9,200 of them full-time.
Ahead of the ABS's January jobs report, investors were forecasting the RBA's cash rate will rise by a bit over 75bps from 3.35% now. By their view, we won't see a rate CUT until well into 2024. In the meantime, there's a 3-in-4 chance the rate will lift another 25bp next month. pic.twitter.com/auMP5XBlIt
— @phannam@mastodon.green (@p_hannam) February 15, 2023
“The latest monthly increase in trend employment was around half of the monthly average for the 20 years before the pandemic, having been above the average for most of 2022,” Jarvis said.
The dollar dropped more than a third of a US cent against the US dollar after the jobs figures, implying investors bet the RBA will not have to lift the cash rate quite as high to cool the economy.
In the share market, the benchmark ASX200 was about 0.7% higher in the afternoon, extending the advance it had made prior to the jobs figures.
‘Beginning to finally buckle’
David Bassanese, an economist with BetaShares, said the labour figures combined with weak retail sales and a slump in consumer confidence suggested the economy “may be beginning to finally buckle under the weight of interest rate increases.”
“As such, it suggests the RBA may not need to raise rates too aggressively in coming months,” Bassanese said.
He is sticking with his prediction the RBA will lift its cash rate in March and April, bringing it to 3.85%, before pausing. ANZ, Westpac and the Commonwealth Bank all predict a similar peak cash rate, while NAB this week lifted its estimate to 4.1%.
However, Sean Langcake, head of macroeconomic forecasting at BIS Oxford Economics, noted the ABS’s caution. While more people were unemployed in January, some of them were expecting to start in new jobs shortly, the ABS said.
“This will boost employment and weigh on unemployment in the February data,” Langcake said.
The data, therefore, was not conclusive. “But it is clear the market is tracking sideways, albeit in a very tight position,” he said.
Cherelle Murphy, EY’s chief economist for Oceania, said the January jobs data “helps the RBA’s mission to bring inflation down, as the labour market is not continuing to get hotter”.
“But it is by no means a sign of labour market weakness, or that the days of rising wages growth are over,” Murphy said.
All states and territories recorded unemployment rates at about 4% or less, with New South Wales leading the way among the states with an unemployment rate of 3.1%, she said.
Other hints of a slowing economy on Thursday include from the Housing Industry Association, with sales of new homes sinking 12.8% in January, leaving sales for the November-January down 46.7% from a year earlier.
“Sales of new homes have stalled in recent months as the adverse impact of the RBA’s rate increases continue to erode market confidence,” said HIA’s chief economist Tim Reardon, citing a survey of large developers in the five biggest states.
“There is no indication that the market has reached the bottom of this cycle with sales falling in all states,” Reardon said, adding that the February RBA rate rise would likely prompt further falls.
“Without an improvement in access to finance, or a lowering of rates, building activity will start to contract from late this year,” he said.
CoreLogic, meanwhile, is predicting a pick-up in auction activity this week. The 1886 scheduled auctions in capital cities is up 27.3% from the previous week, as the market awakens from its seasonal slumber. The tally, though, was almost 35% lower than a year ago.
