Reporter's view: Economists double down on rate cut predictions after unemployment rise
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Reporter's view: Economics correspondent Jennifer Duke writes: The latest labour force data has given some economists extra confidence that rate increases are off the table. While the 4.1% jobless figure is higher than expected, there were about 38,500 jobs created, which was better than anticipated. Overall, though, it's suggesting a weaker jobs market and an ongoing easing.
AMP deputy chief economist Diana Mousina described it as a "mixed bag" with the vast majority of jobs created being part-time positions. She said in an analysis shortly after the data was released that the market is still resilient, but all the signs are for further weakening this year. AMP expects the jobless rate to hit 4.5% by the end of this year, which is earlier than the RBA is anticipating.
Another factor playing into these calculations is yesterday's weaker than expected wages data, which flows into services inflation. Mousina said this means "an interest rate hike should not even be on the agenda of the next RBA board meeting in June".
Commonwealth Bank senior economist Belinda Allen also pointed to these two data points in a note, indicating it has made them more confident in their current forecast of a November rate cut. But she said fiscal policy, and in particular the spending initiatives from this week's budget, remain the main risk to their outlook. Goldman Sachs analysts also re-affirmed November rate cut expectations on the back of the new data.
Treasurer Jim Chalmers said in a media statement that jobs are being created but the labour market is softening. Population growth is a big part of this story here as high immigration soaks up plenty of jobs in the market, which explains why the unemployment rate is climbing even despite a better than predicted job creation figure.
"It shows again what’s been clear for some time now that a weaker global and domestic economy and the rate rises already in the system are having an impact," he said.
Unemployment jumps to 4.1%
The news: The unemployment rate increased to 4.1% in April on a seasonally adjusted basis. Economists were expecting the rate to be around 3.9%.
The numbers: Joblessness ticked up 0.2 percentage points in April with an extra 30,000 people unemployed despite jobs ticking up by 38,000.
Hours worked remained steady over the month, with a return to a more normal seasonal pattern over the Easter holidays. Underemployment increased 0.2 percentage points to 6.6% and underutilisation ticked up 0.2 percentage points to 10.7%, but both measures remain significantly lower than pre-pandemic.
On a trend basis, unemployment remained steady at 4%.
The March unemployment rate surprised the market, which had expected a sharper rise in joblessness, but it has been revised upwards to 3.9%.
The context: The resilience of the jobs market has surprised economists and policymakers in recent months, amid expectations the jobless rate would rise higher than it have on the back of a slowing economy and higher rates.
The RBA is trying to hold onto as many of the labour force gains made during the pandemic as possible while cooling the economy enough to pull back inflation. Official RBA and Treasury forecasts expect unemployment to gradually rise this year, with the 2024 budget putting unemployment at 4% by 2023-24 before stabilising at 4.5% for the two years following.
The RBA expects joblessness to rise to 4% by June 2024 and end the calendar year at 4.2%. It expects a 4.3% unemployment rate to be reached by mid-2025 and for this to remain stable until 2026.
What they said: "The 30,000 people increase in unemployment reflected more people without jobs available and looking for work, and also more people than usual indicating that they had a job that they were waiting to start in," said Australian Bureau of Statistics head of labour statistics Bjorn Jarvis.
The source: Australian Bureau of Statistics
