Jobless rise fails to halt RBA rate hike

Australia’s unemployment rate climbed to 4.6 per cent in August, but economists do not expect the Reserve Bank of Australia (RBA) to stop its tightening cycle. The jobless figure, which rose from 4.2 per cent in July, increased despite a gain of 39,000 jobs, according to the Australian Bureau of Statistics (ABS).

Part-time work drives gains, full-time jobs fall

Employment growth was driven by part-time positions, which increased by 46,000. Full-time employment fell by 6,000. Sean Crick, the ABS head of labour statistics, said there were 28,000 more people in unemployment. The participation rate rose by 0.2 percentage points to 67.1 per cent, with a larger share of people previously outside the labour force moving into unemployment.

Hours worked also rose by 14 million hours, or 0.7 per cent, reversing a decline in July. Employment and hours worked increased by 1.6 per cent and 1.7 per cent, respectively, over the year. The underemployment rate fell by 0.1 percentage points to 6.2 per cent. Under the ABS trend measure, employment grew by 0.2 per cent while hours worked were unchanged. The trend unemployment rate edged up to 4.6 per cent, with the underemployment and underutilisation rates steady at 6.3 per cent and 10.8 per cent, respectively.

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Despite the rise in the headline rate, the report shows a labour market that is not collapsing. The participation rate rose, which typically suggests people are looking for work, but the increase in the number of unemployed people who were previously out of the labour force points to a shift in who is entering the market. This dynamic means the pool of job seekers is expanding, which can help relieve some of the immediate pressure on wages and prices as businesses face a larger pool of available workers to fill roles.

Analysts see 25 basis point hike next week

David Bassanese, chief economist at Betashares, warned that the latest employment figures may be subject to volatility due to Census hiring and changes in survey methodology, and thus the strength in August should be viewed cautiously. He anticipates the RBA will increase the cash rate by 25 basis points to 4.6 per cent, with a possible follow-up increase in November.

Krishna Bhimavarapu, APAC economist at State Street Investment Management, believes the latest labour market figures reduce the need for the RBA to adopt an urgent or hawkish stance. The increase in unemployment to 4.6 per cent, decline in full-time employment, and a stronger-than-expected rise in the participation rate all suggest the labour market is easing. Bhimavarapu noted that a potential statistical break identified by the ABS makes it challenging to compare the seasonally adjusted figures with previous August results.

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Jasmine Zheng, senior economist at ANZ, views the rise in unemployment as consistent with a labour market that is gradually losing tightness, which should help alleviate inflationary pressures. Despite this, Zheng expects the RBA to maintain its description of overall conditions as slightly tight, given the unemployment rate remains near the lower end of the range suggested by Governor Michele Bullock as sufficient to remove heat from the labour market. Zheng anticipates 25 basis point increases in both September and November.

Analysts split on future rate path

VanEck head of investments and capital markets Russel Chesler argued the RBA has waited too long to tighten policy. He said the slight softening in the labour market is not enough to stop the RBA from raising rates next week. Chesler believes the bank may need to increase rates again this year, most probably at the December meeting. He suggested a third increase next year could bring the terminal rate for this cycle to 5.1 per cent. This figure represents the highest the RBA cash rate has been since 2008.

“I think that between 4.5 and 5 [unemployment rate] will probably take enough heat out of the labour market that’ll ease pressure on inflation,” Bullock said during a CEDA discussion this week. Persistent inflation and higher oil prices would keep the RBA focused on returning inflation sustainably to target, with ANZ expecting 25 basis point increases in both September and November.