SYDNEY, Sept 19 (Askume) – Australia’s employment rose higher than expected for a third consecutive month in August but the unemployment rate held steady and labour force expansion accelerated, reinforcing the view that the labour market remains tight.
The report backed the RBA’s assessment that a rate cut is unlikely in the near term, with the market viewing any action at next week’s policy meeting as unlikely.
The Australian dollar recovered from earlier losses against the U.S. dollar, rising 0.2% to $0.6781, while bond futures continued to slide, with the three-year government bond falling 11 basis points to 96.53. The market also lowered the probability of a December rate decline for the first time to 62%, compared with 75% before the data was released.
According to the Australian Bureau of Statistics, net employment increased by 47,500 people in August compared to July. This is significantly higher than market forecasts of an increase of 25,000, although all of the increase will come from part-time employment.
Revised data for July showed there were 48,900 new arrivals, down from 58,200 earlier.
The unemployment rate held steady at 4.2%, as expected, while the participation rate was at a record high of 67.1%.
Robert Carnell, head of Asia-Pacific research at ING, said: “Employment growth again rose close to 50,000 in August, which should dispel any thoughts that the RBA is about to implement a bailout.”
The RBA will lag behind the Fed
Carnell said the data series is highly volatile, but the three-month moving average shows the labor market remains tight, led by an increase in full-time employment.
“We do not think the RBA will follow the Fed’s lead in the short term and that easing will remain limited until 2025… If anything, we think the risk is that the RBA may start easing later and that the overall extent of easing will be reduced by May 2025.
Since November, the Reserve Bank of Australia has maintained policy stability, stating that the current cash rate of 4.35% (0.1% higher than during the pandemic) is sufficient to maintain employment growth while controlling inflation within the target range of 2-3% restrictive.
Overnight, the Federal Reserve joined the other major central banks in cutting interest rates by half a percentage point to prevent labour market conditions from deteriorating too quickly. So far, this is not a concern for the RBA, as it has been somewhat surprised by the strength of recent data on working hours and underemployment .
That’s why underlying inflation, which stood at 3.9% last quarter, is not expected to return to target until the end of next year.
The employment report showed a strong 0.4% increase in hours worked in August, and the ABS said the proportion of people working fewer hours than usual for economic reasons remained below pre-pandemic levels.
The underemployment rate increased slightly to 6.5% from 6.3%.
“Today’s labor data will disappoint those hoping for an ‘early’ policy rate cut,” said Stephen Miller, investment strategist at GSFM.
“There is no ‘significant deterioration’ in the labour market that would allow the Reserve Bank of Australia to signal a potential rate cut in the near future.”
