Australian Employment Exceeds Forecasts for Sixth Month

SYDNEY (Reuters) – Australian employment surpassed expectations for a sixth consecutive month in September, with the unemployment rate remaining steady. This trend reinforces perceptions of a tight labor market and diminishes market expectations for a rate cut by year-end.

The Australian dollar increased by 0.5% to $0.6698, recovering from a one-month low. Additionally, the three-year government bond yield rose by 7 basis points to 3.829%.

Market predictions for a December rate cut from the Reserve Bank of Australia have decreased from 46% to 30%, with growing uncertainty about potential cuts in February 2024, currently priced at 75%.

Robert Carnell, regional head of research at ING, stated, "We see no incentive to shift from our call that the RBA won't even start cutting rates until 1Q2025, and there is a chance that even this is too aggressive."

According to data from the Australian Bureau of Statistics (ABS), net employment surged by 64,100 in September, a significant increase from August’s downwardly revised 42,600. This was well above the market forecast of a 25,000 rise, with most gains in full-time employment.

The jobless rate remained relatively stable at a downwardly adjusted 4.1%, where it has generally held for the past six months. The participation rate climbed to an all-time high of 67.2%, with a rapidly expanding workforce.

Bjorn Jarvis, head of labour statistics at ABS, noted substantial numbers of individuals are entering the labor force and securing employment across various sectors, attributed to the persistently high job advertisements.

The RBA has maintained its cash rate at 4.35% since November, raising it from 0.1% during the pandemic, determined to restrict inflation to its target band of 2-3% while preserving employment gains.

Nonetheless, underlying inflation remains high, and the labor market is only gradually slowing. Consequently, the RBA has all but ruled out a rate cut this year, trailing other major central banks in initiating an easing cycle.

Headline inflation decreased to 2.7% in August due to government electricity rebates; however, the RBA warns that this monthly measure is volatile and that it would overlook temporary impacts.

The job report indicated that hours worked increased by 0.3% in September, following a 0.4% increase, while the underemployment rate fell by 0.1 percentage point to 6.3%, all indicating a robust labor market.

Russel Chesler, head of investments & capital markets at VanEck, remarked, "Ultimately, this means less pressure on the RBA to bring forward its rate cut timeline. The hot jobs market is preventing inflation from falling much further, keeping services inflation persistently high. The market is pricing in cuts to start by February 2025, but we believe rate cuts will start much later in 2025."