Australian jobs fall, easing case for rate hike

Australian employment unexpectedly fell last month while the jobless rate remained unchanged, sending the currency and bond yields lower as traders pared bets on a February interestrate increase.

Employers cut 14,600 roles in December — the first decline in five months — confounding expectations for a 25,000 increase, official data showed yesterday. Unemployment held at 3.5% after being upwardly revised from a 48-year low.

Australian government bond yields and the currency slid after the release, which suggested the Reserve Bank’s aggressive tightening since May is beginning to take some heat out of the economy. In contrast, stocks swung to gains on prospects of a potential rate pause.

The result bolsters the case for the RBA to stand pat at a 10-year high of 3.1% at its first meeting of the year on Feb 7. The central bank has lifted borrowing costs by 3 percentage points in consecutive monthly moves since May and discussed a pause at its December meeting.

Money market pricing implies a 50% chance of a quarter percentage-point rate rise in February, down from more than 80% prior to the data. Markets also pared back the chance of a second hike.

“There are signs that the labour market is going to weaken from here,” said Diana Mousina, a senior economist at AMP Capital Markets Ltd. “Our model of jobs growth looking ahead is pointing lower.

The model includes things like hiring intentions, job advertisements, job vacancies, and they’ve all been weakening off last year’s levels.”

Mousina expects the RBA will leave the cash rate unchanged, while adding that inflation data next week and retail sales the week after that will also be important in what policymakers ultimately decide.

Australia’s labour market rapidly tightened in the first half of 2022, averaging a monthly gain of 54,500 jobs, before decelerating in the second half to a still-brisk average of 30,200.

The ABS, in a statement, attributed some of last month’s weakness to a renewed outbreak of Covid-19.

“In December, we saw the number of people working reduced hours due to illness increasing by 86,000 to 606,000, which is over 50% higher than we would usually see at this time of the year,” said Lauren Ford, head of labour statistics at the ABS.

The resilience of the labour market is a key reason the central bank reckons it can engineer a soft landing in the A$2.2 trillion economy as policymakers raise rates to rein in inflation. The RBA expects unemployment will hover around the current level through mid-year.

But many economists forecast it will climb as job vacancies plateau and labour supply increases thanks to rapidly rising immigration.

Today’s report also showed that the participation rate fell to 66.6% from 66.8%.