The unemployment rate in Australia declined to 3.9% in November, the lowest since March, as employment increased by 35,600 people in seasonally adjusted terms, according to the Australian Bureau of Statistics. In seasonally adjusted terms, the number of unemployed people declined by 27,000. It is the first time that the unemployment rate has dropped since August, and it stands at 4.1% compared to last month.
A bigger than normal number of people entering work in November partly explained an ABS claim that unemployment has started to fall. These are the unemployed individuals who were waiting to commence during October but did not so start. However, full-time employment increased by 52,600 while part-time employment decreased by 17,000. According to head of ABS labor statistics David Taylor, “population growth has been contributing to an increase in the supply of labor, and employment remains in step.”
Underemployment rate also declined by 0.1 percentage points to 6.1%, and it is a significant improvement compared with the March 2020 levels. These figures indicate that the Australian labor market is still strong and tight compared to the pre-pandemic levels.
The positive employment data have forced economists to change their view on the prospects of an interest rate cut by the Reserve Bank of Australia. Positive job market conditions indicate that perhaps the RBA may not cut interest rates as soon as people expect it. Economist Callam Pickering said that a near-term rate cut is unlikely given the robust job market. According to David Bassanese, chief economist with BetaShares, while low unemployment alone would not be the reason for not cutting interest rates, falling inflation that is combined with sustained low unemployment may push the RBA to rethink its position.
While there are some indicators of cooling off in the economy, such as a slower pace of GDP growth, economists are struggling to forecast the trend in unemployment. As Gareth Aird of CBA commented, usual economic relationships, including that of GDP growth and unemployment, do not appear to be holding good today. The mixed data has spiked uncertainty over both a future job market and a future inflation regime.
The latest employment report further complicates the decision-making of the RBA, given that inflation has not gone back into its target band. Some economists say that the RBA might take a slower rate of easing in coming months with inflation slowly easing and consumer confidence improving.
