Employment in Australia unexpectedly plummets after four positive months

Employment in Australia unexpectedly plummets after four positive months

Australian employment fell surprisingly in December, breaking four months of gains and sending the currency tumbling, as traders increased bets that the Reserve Bank would shift to policy easing this year.

The economy shed 65,100 jobs, led by the biggest monthly drop in full-time employment since the height of the pandemic, government data showed Thursday. Unemployment remained at 3.9%, cushioned by a sharp drop in the number of workers seeking employment.

The Australian dollar fell up to 0.4% as swaps traders priced in a chance of around 60% that the central bank will cut borrowing costs in August, down from 50% before the jobs release. Stocks pared losses.

“Make no mistake, the labor market is cooling and, after a recent run of weaker inflation data, rate cuts from the RBA are on the horizon,” said Tony Sycamore, market analyst at IG in Sydney. “The data from inflation scheduled for January 31 will determine whether expectations of two 25 basis point RBA rate cuts will become three in 2024.”

Although monthly data is volatile, The result suggests that a long-awaited easing of the labor market is possible after 4.25 percentage points of rate hikes since May 2022. Thursday’s report, along with fourth-quarter inflation data, will help shape RBA policy. political decision at its meeting on February 5 and 6, the first of the year.

Last month, the bank The central bank kept rates at a 12-year high of 4.35%, maintaining its restrictive bias.

What Bloomberg Economics says…

“Labor demand is on track to slow even faster as the economy slows. For the RBA, this will be a compelling reason to reverse course and start cutting rates as early as the second quarter.”

—James McIntyre, economist

The jobs report showed that full-time jobs fell the most since May 2020, while part-time positions rose by just over 40,000.

“A 106,600 drop in full employment does not help the Australian dollar and supports RBA rate cut expectations in the second half”said Rodrigo Catril, currency strategist at National Australia Bank Ltd. in Sydney. “The Australian dollar risks extending its recent decline.”

In December, authorities described the labor market as still tight, while pointing to leading indicators such as job openings that have begun to decline from high levels. In that context, Thursday’s report is likely to reinforce confidence among RBA watchers that easing is on the cards.

Annual employment growth fell to 2.8% in December from 3.6% at the beginning of 2023. The RBA expects the unemployment rate to rise to 4.25% by the end of this year.

Thursday’s jobs data also showed:

The participation rate fell to 66.8% from a revised 67.3%.
Underemployment remained at 6.5% and the underutilization rate also remained unchanged at 10.4%.
The employment-population ratio decreased to 64.2%